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Author: 


Huebner,  Grover  Gerhard 


Title: 


Agricultural  commerce 


Place: 


New  York 

Date: 

1919 


Q5 -61^57-1 

MASTER   NEGATIVE   # 


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Huebner,  Grover  Gerhard. 

Agricultural  commerce ;  the  organization  of  AUTOTK 
commerce  in  agricultural  commodities,  by  Grover   G^ 
Huebner  . . .    New  York  [etc.]  D.  Appleton  and  company^ 
-1915:    1919* 

xiv  p.,  1  1.,  406  p.  incl.  maps,  forms,    fold.  form.    19i"".      ($125  ^ 
Contains  bibliographies. 


1  produce  trade— U.  S.    2.  Farm  produce— Marketing.    3. Agriculture— 
U.  S:  4.  U.  S.-Comm.        i.  Title.  '"iS— 25493 

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MAIN  ENTRY:    Huebner.  Grover  Gerhard 

Agricultural  commerce 


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AGRICULTURAL  COMMERCE 


't 


. 


AGRICULTURAL 
COMMERCE 

THE  ORGANIZATION  OF  AMERICAN  COMMERCE 
IN  AGRICULTURAL  COMMODITIES 


BY 

GROVER  G.  HUEBNER,  Ph.D. 

Assistant  Professor  of  Transportation  and  Commerce* 

Wharton  School  of  Finance  and  CoMBiERCE 

University  op  Pennsylvania 


D.  APPLETON  AND  COMPANY 
NEW  YORK  LONDON 

1919 


->/ 


^   //  /   3  5" 


COPTBIGHT,    1915,   BT 

D.  APPLETON  AND  COMPANY 


)46 


Printed  in  the  United  States  of  America 


^ 


TO 

MY  WIFE 

IN  APPRECIATION  OP  HEB 
ASSISTANCE  IN  THE  PREP- 
ARATION OF  THIS  VOLUME 


PKEFACE 


I'he  purpose  of  this  volume  is  to  describe  the  commerce  of 
the  United  States  in  agricultural  products,  special  attention 
being  given  to  those  phases  of  trade  organization  which  have 
to  do  with  the  distribution  of  farm  commodities  from  pro- 
ducer to  consumer.  Its  scope  is  more  fully  outlined  in  Chap- 
ter I.  It  is  especially  designed  to  serve  as  a  textbook  for 
colleges  and  universities,  much  of  the  information  contained 
in  it  having  been  compiled  for  use  in  a  course  dealing  with 
the  Organization  of  American  Commerce,  which  the  author 
has  conducted  at  the  University  of  Pennsylvania  since  1908. 

I  desire  to  acknowledge  with  many  thanks  my  obligations 
to  the  various  state  and  federal  government  officials  and  offi- 
cials of  grain,  cotton  and  other  exchanges,  elevator,  insur- 
ance, grain  dealing  and  other  business  concerns  which  have 
courteously  provided  me  with  forms  and  other  information. 

I  wish  especially  to  thank  Dr.  Emory  E.  Johnson,  Pro- 
fessor of  Transportation  and  Commerce  at  the  University  of 
Pennsylvania,  for  reading  the  proof  of  the  volume  and  offer- 
ing many  valuable  suggestions  during  the  course  of  its  prep- 
aration. I  am  also  indebted  to  my  brother.  Dr.  S.  S.  Hueb- 
ner.  Professor  of  Insurance  and  Commerce,  University  of 
Pennsylvania,  for  suggestions  concerning  the  chapters  deal- 
ing with  insurance  and  speculation,  and  to  Mr.  Kobert  Kiegel, 
Instructor  in  Insurance  and  Commerce,  University  of  Penn- 
sylvania, for  assistance  in  proofreading   and  for   preparing 

the  index, 

Grover  G.  Huebner. 


'» 


'\ 


CONTENTS 


CHAPTEB 

I.— INTRODUCTION:    DEFINITIONS  AND  SCOPE     .    . 

Production  and  distribution  distinguished,  1 — Commerce 
defined,  2— Study  of  commerce  in  agricultural  products 
subdivided,  3— Plan  of  treatment,  4 — General  classifica- 
tion of  agricultural  crops,  4:  The  primary  crops,  5— 
Livestock  on  farms,  8 — Animal  products  produced  on 
farms,  8. 

II.— CLASSIFICATION    OF    AGRICULTURAL    MARKETS 
AND  MARKETING  PROCESSES 

Classification  of  agricultural  markets,  12:  Growers'  local 
markets,  12 — Central  wholesale  markets,  13 — Secondary 
wholesale  markets,  15— Retail  markets,  16 — Classification 
of  marketing  processes,  16:  Growers'  Sales,  17— Local 
dealers'  sales,  19— Central  market  trade  organization,  19 
— Secondary  wholesale  market  transactions,  22 — Retail 
sales,  23— Consumers'  purchases,  24 — Exporting  and  im- 
porting methods,  25.  Agricultural  export  methods,  25— 
Agricultural  import  methods,  26. 

ni— THE  COUNTRY  GRAIN  ELEVATOR  AND  WARE- 
HOUSE SYSTEM:  THE  LOCAL  GRAIN  MAR- 
KET      •    •     *      • 

Functions  of  country  elevators  and  warehouses,-  29 — Geo- 
graphical distribution  of  the  local  grain  trade,  30:  Dis- 
tribution of  local  wheat  trade,  30— Distribution  of  local 
corn  trade,  32 — Distribution  of  local  trade  in  oats,  34 — 
Distribution  of  local  trade  in  barley,  36— Transfer  of 
grain  from  grower  to  country  elevator  or  warehouse,  36: 
Length  and  cost  of  local  haul,  36— Methods  of  local  haul- 
ing, 37— Description  of  country  elevators,  38— Management 
of  country  grain  elevators,  40:  Classification  of  country 
elevators,  40 — Line  elevator  companies,  40 — Local  grain 
dealers'  elevators,  43— Farmers'  cooperative  elevators, 
44 — The  local  grain  market  in  the  Pacific  Coast  region, 
46:  Local  purchasing  by  exporters,  46— Handling  of  grain 
in  sacks,  47— Relative  absence  of  country  elevators,  48— 
Cooperative  growers'  associations,  48— Price-quoting  sys- 
tem, 48. 

ix 


PAGB 
1 


12 


29 


I 


*  CONTENTS 

CHAFTEB  PAOB 

IV.— PEIMARY    AND     SEABOARD     GRAIN    MARKETS- 

THE  TERMINAL  ELEVATOR  SYSTEM  .     .     .    !      50 

The  flow  of  the  grain  trade,  50:  The  system  of  grain 
markets,  50 — Geographical  location  of  primary  markets 
51 — The  volume  of  business  at  the  primary  markets,  54-^ 
Competition  between  primary  markets,  55 — Functions  of 
primary  markets,  56 — Shipping  routes,  56— Milling-in- 
transit,  59— The  seaboard  markets,  60— Activities  and  man- 
agement of  terminal  elevators,  61 :  The  functions  of  ter- 
minal elevators,  62 — Construction  and  capacity  of  termi- 
nal elevators,  62 — Elevator  ownership,  63 — Regulation  by 
the  states,  65 — Regulation  by  grain  exchanges,  74 — Fed- 
eral regulation,  78— Sources  of  elevator  profits,  78 — The 
purchase  and  sale  of  grain  at  the  primary  markets,  83: 
The  purchase  of  grain  from  country  elevators,  84 — The 
sale  of  grain  stored  in  terminal  elevators,  86 — ^Factors 
influencing  grain  prices,  88. 

V.~THE  LOCAL  COTTON  MARKET 94 

The  cotton-growing  belt,  94:  Commercial  and  geographi- 
cal classification,  95 — World's  production  of  cotton,  98 — 
The  local  handling  and  shipment  of  cotton  by  growers, 
100:  Ginning  and  baling,  100 — Local  storage  and  haul- 
ing, 102 — Sale  of  cotton  by  the  grower,  103:  Sale  to 
local  merchants,  104 — Sale  to  exporting  houses  and  cotton 
brokers,  105 — Sale  to  southern  mills,  106 — Consignment  to 
cotton  factors,  107 — Sale  to  foreign  buyers,  108 — The  cot- 
ton-growers' unions,  108 — The  determination  of  the 
growers'  prices,  110. 

VI.— CENTRAL    COTTON    MARKETS:      THE    DISTRIBU- 
TION OF   COTTON 116 

Supply  and  distribution:  Cotton  exports,  116 — Shipments 
to  northern  mills,  118 — Consumption  by  southern  mills, 
118 — Direct  shipments,  119:  Marking  and  tagging,  119 
— Compressing  flat  bales,  120 — Through  bills  of  lad- 
ing, 121 — Cotton  insurance,  121 — Interior  points  of  concen- 
tration, 122 :  Sources  of  supply,  123 — Functions,  123 — Ex- 
tent of  competition,  123 — ^Purchase  of  cotton  from  grow- 
ers, local  merchants  and  factors,  124:  Cotton  receiving, 
ports,  125 :  Functions  of  receiving  port,  126 — Sale  of  cot- 
ton to  domestic  mills,  126:  Manner  of  sale,  126 — Terms 
of  sale,  127 — Time  of  sale,  128— Sale  of  cotton  in  foreign 
markets,  129 :  Methods  of  sale,  129 — Terms  of  sale,  130 — 
The  making  of  cotton  prices,  131:  Spinners'  and  impor- 
ters' prices,  '131 — The  factors  affecting  future  and  central 
market  prices,  133. 


CONTENTS 


XI 


f» 


CHAPTEB  PAOB 

VII.— R  E  LA  T  I O  N  S  BETWEEN  SPECULATIVE  .  EX- 
CHANGES AND  THE  SALE  OF  FARM  PROD- 
UCE      136 

Organization  of  speculative  produce  exchanges,  137: 
Speculative  grain  exchanges,  137 — Speculative  cotton  ex- 
changes, 138 — Corporate  and  business  organization,  138 — 
Future  contracts,  140:  Definition  of  future  contracts, 
140 — Cotton  futures  are  basis  contracts,  145 — Cotton 
grade  differences,  146 — Grain  futures  are  basis  contracts, 
148 — Short  selling,  149 — Manner  of  delivery,  149 — Legal- 
ity and  binding  nature  of  futures,  150 — Bucket  shops, 
151 — Options,  151 — Functions  of  speculative  exchanges  in 
the  sale  of  spot  produce,  151:  Speculative  exchanges  as 
spot  markets,  152 — Speculative  exchanges  provide  a  con- 
tinuous market,  153 — Speculative  exchanges  collect  and 
disseminate  trade  information,  154 — Speculative  exchanges 
tend  to  establish  world  prices,  154 — Future  contracts  as  a 
means  of  insuring  trade  profits,  155 — Effect  of  specula- 
tion on  spot  prices,  160. 


VIII.— THE  LOCAL  MARKET  FOR  LIVESTOCK     ...     164 

Geographical  classification  of  livestock  trade,  164:  The 
;  cattle-growing  districts,  164 — The  hog-raising  area,  167 — 
The  sheep-growing  districts,  167 — General  magnitude  of 
livestock  industries,  168 — ^Volume  of  annual  livestock 
trade,  170 — Shipping  from  local  points  to  central  markets, 
170:  Railroad  equipment,  171 — ^Livestock  contract, 
171 — Transportation  charges,  172 — ^Public  regulation, 
173 — ^Local  inspection  of  livestock,  174 — Methods  of  sell- 
ing livestock,  177:  Sales  through  central  commission- 
men,  177 — Cooperative  livestock  shipping  associations, 
178 — Sales  to  local  livestock  dealers,  179 — Sales  to  local 
slaughterers  and  retail  butchers,  179 — ^Private  sales  to 
packers,  179 — ^Private  sales  to  feeders,  179. 


IX.— CENTRAL  LIVESTOCK  MARKETS . 

Central  market  receipts,  181 — Central  market  competition, 
182 — Shipment  from  central  markets,  185 — Relative  im- 
portance of  packers  and  wholesale  slaughterers,  186 — 
Functions  of  central  markets,  186 — Organization  and 
description  of  central  markets,  187:  The  stockyards, 
187 — Livestock  exchanges,  188— Sales  at  the  stockyards, 
189 — Marketing  costs,  190 — Livestock  and  meat  inspection 
at  central  markets,  191 — ^Livestock  prices,  197. 


181 


i 


zu 


CONTENTS 


CHAFTEB 

X— THE  WOOL  MARKET 


CONTENTS 


xui 


PAoa 
202 


Supply  and  distribution  of  wool,  202:  Wool  production 
m  the  United  States,  202-Imports  of  foreign  wool. 
j04__Competition  between  domestic  and  foreign  wool 
207— Reasons  for  extensive  imports  of  wool,  208— Distri- 
bution by  industries,  211— Central  wool  markets  212- 
The  eastern  markets,  212-<:!entral  western  mkrkets" 
213—1-30160  Coast  markets,  214— Functions  of  central 
wool  markets,  214— The  local  purchasing  of  wool  215- 
Purchase  from  American  growers,  215— The  purchase  of 
imported  wool,  217— Wool  prices,  218. 

XL— THE  LEAF  TOBACCO  TRADE .     222 

Leaf  tobacco  districts  and  types,  222:  Commercial 
classes  and  types,  222— Leaf  tobacco  districts,  223— Meth- 
ods of  selling  leaf  tobacco  in  the  United  States,  228- 
Sale  of  cigar  types,  228— Sale  of  smoking,  chewing,  snuff 
and  export  leaf,  230— Southern  leaf  tobacco  markets 
233— Southern  leaf  buyers,  234— Foreign  trade  in  leaf  to- 
bacco, 235 :  Leaf  tobacco  exports,  235— Leaf  tobacco  im- 
ports, 235 — ^Leaf  tobacco  prices,  235. 


^1 


CBAFTER  PAGE 

XIV.— COLLECTION    AND    DISSEMINATION    OF    CROP 

REPORTS 293 

Government  crop  reports,  294:  Purpose  of  government 
crop  reports,  294 — Organization  of  crop-reporting  service 
of  Department  of  Agriculture,  295 — Scope  of  crop  reports 
of  Department  of  Agriculture,  298 — ^Returns  of  United 
States  Census  Office,  299 — United  States  Bureau  of  For- 
eign and  Domestic  Commerce,  301 — State  reports,  301 — 
Crop  reports  of  private  organizations,  301:  The  visible 
supply,  301 — Other  privately  collected  crop  information,  302. 


XV.— THE  INSURANCE  OF  AGRICULTURAL  COMMODI- 

TIES 308 

Rural  crop  insurance,  308 — Sources  of  rural  insurance, 
310 — Insurance  as  the  basis  of  commodity  loans,  311 
^The  insurance  of  stored  commodities,  313 — Insurance 
of  commodities  in  mills,  factories  and  mercantile  estab- 
lishments, 314 — Insurance  of  commodities  en  route,  315: 
Insurance  of  railroad  shipments,  315 — Insurance  of  marine 
cargoes,  317 — Insurance  the  basis  of  financial  settlement, 
325. 


XII.— THE  MARKETING  OP  FRUIT ,239 

The  fruit-growing  districts,  239:  Orchard  fruits,  239— 
Small  fruits,  240— Grapes,  242— Citrus  fruits,  242— Non- 
citrous  tropical  and  sub-tropical  fruits,  242— Importation 
of  fruits,  243— Preparation  for  market,  244 :  Fruit  grad- 
^  ing,  244— Fruit  packing,  245— Pre-cooUng,  246— Shipping 
fruit  to  market,  246:  Refrigeration  car  service,  246— Fruit 
markets,  247— Fruit  exports,  249— Fruit  warehouses,  249— 
Methods  of  marketing  fruit,  250:  Distribution  in  whole- 
sale markets,  250— Retailing  of  fruit,  254— Fruit  grow- 
ers' cooperative  associations,  255. 

XIII.— THE  COMMERCIAL  INSPECTION  AND  GRADING 

OF  AGRICULTURAL  STAPLES 259 

Functions  of  inspection  and  grading,  259— The  inspection 
and  grading  organization,  261— Inspection  and  grading 
of  grain,  262 :  Illinois  grain  inspection  service,  262— Fac- 
tors determining  grades  of  grain,  267— The  grades  of 
grain,  268 — Cotton  grading  and  inspection,  270:  Cotton- 
grading  factors,  271— Cotton  grades,  273— Commercial 
classifying  and  grading  of  livestock,  285:  The  grading 
of  wool,  287 — ^Leaf  tobacco  grades,  290. 


XVI.— THE  FINANCING  OF  CROPS 


327 


f 


; 


Rural  credit,  327:  Long-term  mortgage  credits,  327 — 
Short-term  rural  commercial  credits,  328 — Short-comings 
of  farm  credits,  329 — Dealers'  loans  on  produce,  332: 
Loans  on  grain,  332 — Cotton  loans,  333 — ^Leaf  tobacco  and 
wool  loans,  333 — Cold  storage  warehouse  loans,  334 — The 
place  of  hedging  in  crop  financing,  334 — Methods  of 
financial  settlement,  335:  Domestic  settlements,  335 — 
Settlement  of  agricultural  exports  and  imports,  336 — The 
seasonal  flow  of  crop-moving  funds,  338. 


XVII.— PRICES  OF  AGRICULTURAL  COMMODITIES  .     . 

Wholesale  prices,  341:  Price  index  numbers  of  agricul- 
tural products,  342 — Index  numbers  of  general  wholesale 
price  levels,  343 — Wholesale  price  factors,  347:  The  gold 
production  theory,  347 — The  forces  of  supply  and  demand, 
350 — Speculation  in  farm  products,  354— Manipulation 
and  corners,  355 — Combination  and  consolidation,  356 — 
Cold  storage,  357 — Transportation  charges,  358 — Commer- 
cial costs,  360 — American  import  duties,  360 — General 
business  conditions,  362 — Growers'  local  prices,  362 — ^Re- 
tail prices,  364. 


341 


xiv  CONTENTS 

PAGB 

XVIII.— FOREIGN    MARKETS    AND    MARKET    INFLU- 
ENCES  3^^ 

Historical  development  of  agricultural  exports,  368: 
Prior  to  the  Treaty  of  Ghent,  368— The  period  1815-1818, 
369— The  period  1818-1830,  369— The  period  1830-1836, 
370— The  period  1836-1845,  370— The  period  1846-1860, 
370— The  Civil  War  era,  371— The  period  1865-1900,  372— 
Recent  developments  of  agricultural  exports,  374— Foreign 
markets  for  agricultural  exports,  376:  European  mar- 
kets, 376— Non-European  markets,  378— Agricultural  ex- 
port trade  influences,  378:  Favorable  influences,  378— 
Unfavorable  influences,  380— The  agricultural  imports, 
381 :  Effect  of  agricultural  imports  on  American  farmers, 
384. 


Appendix— United  States  Cotton  Futures  Act 
Index ••••••• 


389 
399 


*   II 


LIST    OF   MAPS 

Value  of  All  Primary  Crops   (1909) 

Value  of  Domestic  Animals  on  Farms • 

Wheat  Districts  and  Central  Grain  Markets      .      .      . 

The  Corn  Belt ^r   *i      ' 

Territorial  Competition  Among  Primary  Grain  Markets 

The  Cotton  Belt,  1913-1914 •      • 

Beef  Cattle  Districts  and  Central  Livestock  Markets     . 

Sheep-Growing   Districts 

Location  of  Range  Country 

Leaf  Tobacco  Districts       • 

Orchard  Fruits       .      ,      ,      .      •      t      t      •      •      •      • 


PAGB 

7 

9 

31 

33 

57 

96 

166 

169 

205 

225 

241 


•1 


V 


•'/ 


AGRICULTURAL  COMMERCE 


CHAPTER   I 
INTRODUCTION:    DEFINITIONS  AND  SCOPE 

Production  and  Distribution  Distin^shed.— In   agricul- 
ture as  in  other  industries  production  and  commercial  distri- 
bution, although  closely  interrelated,  are  essentially  distinct 
processes.     The  former  has  reference  to  the  growth  of  the 
country's  farm  products ;  the  latter  to  their  sale  and  distribu- 
tion from  the  grower  to  the  consumer.     So  clearly  has  this 
distinction  been  maintained  in  the  farming  industries  that  for 
many  years  the  term  "agriculture,"  in  the  absence  of  specific 
definition,  was  generally  synonymous  with  agricultural  "pro- 
duction."   Gradually,  however,  it  is  being  realized  that  agri- 
culture depends  as  much  upon  the  successful  commercial  dis- 
tribution of  the  crops  as  upon  their  successful  production. 
Many  growers  confine  their  activities  largely  to  the  produc- 
tion of  farm  products;  others,  in, addition,  pay  much  atten- 
tion to  the  marketing  of  their  crops;  and  there  are  many 
dealers,  transportation   agencies,  warehousemen,  and  other 
trade  interests   engaged  in  the  distribution  of  farm  com- 
modities, whose  activities  are  purely  commercial.    No  matter 
by  whom  these  services  are  performed,  the  production  and  the 
distribution  of  farm  products  are  separate  services  and  both 
are  of  unquestioned  importance. 

In  discussing  the  commerce  in  farm  products  it  is  not 
necessary  to  deal  with  soils,  seed  selection,  planting,  cultiva- 
tion, fertilizers,  crop  rotation,  farm  labor,  production  costs, 
crop  pests  and  animal  diseases,  harvesting  methods,  feeding, 
Uvestock  breeding,  farm  machinery,  land  rents  and  similar 


2 


AGRICULTUKAL  COMMERCE 


phases  of  agriculture ;  for  such  matters  constitute  agricultural 
production.  They  need  to  be  mentioned  only  in  so  far  as  they 
exert  an  indirect  influence  upon  agricultural  prices.  Subse- 
quent chapters  will  be  confined  exclusively  to  the  commercial 
phases  of  agriculture. 

Commerce  Defined. — Various  terms  are  almost  indiscrim- 
inately applied  to  the  distribution  of  products  from  producer 
to  consumer.  Some  refer  to  it  as  "commercial  distribution/' 
some  prefer  "marketing,"  and  others  "commerce.^'  Any  of 
these  terms  readily  lends  itself  to  the  following  concise  defini- 
tion of  commerce:  "Commerce  consists  of  the  exchange  of 
commodities  between  separated  localities — it  is  the  agency  by 
means  of  which  consumer  and  producer  are  brought  together. 
The  process  involves  the  sale  and  purchase  of  goods,  their 
transmission  from  the  seller  to  the  buyer,  and  the  settlement 
of  business  accounts.^'  ^  Whatever  term  is  preferred  in  de- 
scribing the  commercial  phases  of  agriculture,  it  is  essential 
to  interpret  its  meaning  broadly  so  as  to  exclude  all  those 
which  are  primarily  related  to  the  production  or  growth  of 
farm  products  and  to  include  all  those  which  have  to  do  with 
their  distribution  from  grower  to  consumer. 

Study  of  Commerce  in  Agricultural  Products  Subdivided. 
— In  order  to  facilitate  discussion  the  study  of  the  commerce 
in  farm  products  may  be  subdivided  as  follows : 

1.  The  geographical  location  of  producing  districts,  in- 
cluding a  statement  of  the  volume  and  value  of  crops  pro- 
duced and  the  proportion  reaching  the  country's  markets. 

2.  The  location  and  classification  of  different  types  of 
agricultural  markets,  competition  within  and  between  mar- 
kets, and  market  conditions  or  influences. 

3.  The  trade  organization  or  methods  of  purchase  and 
sale,  including  a  description  of  (a)  the  various  kinds  or 
groups  of  buyers  and  sellers,  (b)  their  methods  of  buying  and 
selling,  (c)  the  organization  and  functions  of  exchanges,  (d) 
the  uses  and  workings  of  warehouses,  elevators,  yards  or  mar- 
ket-places where  farm  products  may  be  stored  or  marketed, 
and  (e)  cooperative  trade  activities  of  growers. 

*  E.  B.  Johnson :   American  Eailway  Transportation,  p.  4. 


DEFINITIONS  AND  SCOPE  3 

4.  The  transportation  or  shipping  organization,  includ- 
ing the  hauling  of  farm  products  from  farm  to  local  market  or 
shipping  point,  and  their  transportation  from  local  points  to 
more  distant  domestic  and  foreign  markets,  over  rail  and 
water  transportation  routes. 

6.     The  inspection,  classification  and  grading  of  farm 

products.  •       •      t. 

6.  The  control  or  regulation  of  commercial  distribution  by 
public  authorities  and  by  organized  exchanges,  boards  of  trade 
or  other  commercial  bodies. 

7.  The  relationship  between  speculation  and  the  trade  m 

farm  commodities. 

8.  The  collection  and  di'ssemination  of  trade  information. 

9.  Local  wholesale  and  retail  agricultural  prices,  price 
factors  or  influences,  and  methods  of  determining  and  quoting 

prices. 

10.  The  cost  incurred  in  the  commercial  distribution  of 

agricultural  crops. 

11.  The  relationship  between  insurance  and  the  com- 
merce in  farm  commodities. 

12.  The  financing  of  the  agricultural  crops. 

The  transportation  or  shipping  service  mentioned  above 
is  one  of  the  most  important  parts  of  the  entire  machinery  of 
commerce  as  a  whole,  but  as  it  has  been  described  elsewhere 
in  great  detail,^  it  is  not  intended  to  discuss  in  this  volume 
the  methods  of  making  freight  rates,  general  transportation 
services,  or  transportation  as  an  industry.  It  is  essential, 
however,  to  include  various  phases  of  transportation,  such  as 
the  relation  of  freight  charges  to  marketing  costs,  trade 
profits,  and  prices ;  rail  and  water  routes  for  particular  crops ; 

'See  especially  E.  E.  Johnson  and  G.  G.  Huebner:  Railroad 
Traffic  and  Rates  (1911)  ;  E.  R.  Johnson:  American  Railway  Trans- 
portation (1908);  W.  Z.  Ripley:  Railroad  Rates  and  Regulation 
(1912):  Logan  McPherson:  Railroad  Freight  Rates  (1909);  W.  A. 
Trimpe:  Freight  Claims  (1913);  J.  F.  Morton:  Routing  Freight 
Shipments  (1913);  E.  R.  Dewsnup:  Freight  Classification  (1913); 
E  R.  Johnson:  Ocean  and  Inland  Water  Transportation  (1906); 
B  O  Hough;  Ocean  Traffic  and  Trade  (1914);  and  House  Commit- 
tee on  the  Merchant  Marine  and  Fisheries,  Steamship  Agreements 
and  Affiliations,  VoL  iv  (1914). 


t! 


4  AGRICTJLTURAL  COMMERCE 

in-transit,  reconsignment  or  diversion  privileges;  specialized 
equipment;  various  special  transportation  services  and  prac- 
tices; and  the  costs  of  hauling  the  crop  from  the  farms  to 
local  markets  or  shipping  points. 

Plan  of  Treatment. — A  certain  degree  of  uniformity  pre- 
vails throughout  the  commercial  distribution  of  the  various 
crops,  thus  facilitating  the  general  description  of  many  of 
the  above-mentioned  subdivisions.  In  some  respects,  however, 
there  is  such  wide  divergence  in  practice  that  the  detailed 
study  of  commerce  in  selected  commodities  becomes  essential. 
Various  phases  of  commercial  distribution  are  discussed  in 
subsequent  chapters,  for  the  agricultural  crops  as  a  whole, 
while  at  the  same  time  special  chapters  contain  descriptions  of 
the  commerce  in  the  cereals  and  in  cotton,  livestock,  wool,  leaf 
tobacco,  and  fruit.  These  particular  crops  were  selected  be- 
cause of  their  great  volume  and  because  they  are  of  special 
importance  from  the  standpoint  of  trade  methods  or  com- 
mercial organization. 

The  country's  crops  of  hay  and  forage,  farm  dairy  products 
and  eggs  likewise  have  a  huge  money  value,  but  they  are  less 
typical  of  agricultural  trade  methods  because  a  large  propor- 
tion of  these  groups  is  retained  for  consumption  on  the  farms, 
a  smaller  share  reaches  the  great  wholesale  markets  for  system- 
atic organized  distribution,  and  the  huge  local  trade  in  them 
does  not  require  detailed  description.  Vegetables  are  also  an 
agricultural  crop  of  vast  importance,  but  the  manner  in  which 
the  commerce  in  most  of  them  is  conducted  is  so  like  that 
which  prevails  in  the  fruit  trade  that  separate  description  of 
both  is  scarcely  warranted  in  a  volume  of  limited  space.^ 
Dressed  meat  and  meat  products  produced  on  the  farms,  as 
distinguished  from  livestock,  require  but  brief  mention,  for 
most  of  them  are  either  consumed  on  the  farms  or  are  sold 
in  nearby  markets  for  local  consumption. 

General  Classification  of  Agricultural  Crops.— Although 
the  commerce  in  farm  products  is  directly  concerned  only  with 
those  which  actually  reach  the  agricultural  markets,  it  is  indi- 
rectly concerned  with  the  total  crops  annually  produced.    The 

*  The  Marketing  of  Fruit,  chap.  xi. 


In 


DEFINITIONS  AND  SCOPE  ^  5 

entire  volume  of  the  country's  crops  cannot  be  stated  in  a 
single  aggregate  because  they  comprise  a  wide  variety  of  prod- 
ucts which  are  not  measured  by  a  common  unit  or  standard. 
It  is  also  difficult  to  estimate  accurately  their  entire  net  value. 
So  much  grain,  for  example,  is  fed  to  livestock  and  poultry 
that  an  addition  of  the  values  of  grains,  livestock  on  farms, 
country  dairy  products  and  eggs  would  merely  result  m  a 
gross  value  containing  flagrant  duplications.     The  United 
States    Census    Office   in   its   latest   report   has   attempted 
no  statement  of  an  aggregate  net  volume   or  value,   but 
confined  its  returns  to  a  separate  description  of  three  lead- 
ing groups  of  farm  products.     A  brief  review  of  the  latest 
census  returns  will  serve  as  a  general  measure  of  the  vast- 
ness  of  the  agricultural  trades.    Official  statistics  showing  the 
value  and  volume  of  most  of  the  country's  crops  are  available 
for  later  years  and  many  are  presented  in  subsequent  chapters, 
but  complete  returns  including  all  farm  commodities  are  not 

currently  compiled.^  j  •    x i. 

1,    The  Primary  Cro^s.— The  term  "crops"  as  used  m  the 
census  returns  includes  only  the  cereals,  hay  and  forage,  cot- 
ton,  leaf  tobacco,  vegetables,  fruits  and  other  commodities  in- 
cluded in  Table  No.  I.    These  products  are  often  referred  to 
as  the  "primary  crops,"  because  they  are  fundamental  and 
constitute  the  basis  for  most  of  the  remaining  farm  products. 
The  value  of  all  the  primary  crops  of  the  United  States  m  the 
census  year  1909  was  reported  to  be  $5,487,000,000-a  per 
capita  value  of  nearly  $60.     Their  total  value  was  83.1  per 
cent  in  excess  of  what  it  had  been  a  decade  earlier,  but  this 
was  due  mainly  to  an  increase  of  66.4  per  cent,  in  their  aver- 
age  price.    On  the  basis  of  the  prices  which  ruled  m  1899  the 
value  of  these  crops  in  1909  would  have  been  but  10  per  cent, 
higher  than  it  was  a  decade  earlier,  and  this  represents  the 
real  advance  in  primary  crop  production.^ 

^See  U.  S.  Department  of  Agriculture,  Year  Books  (1910-1912) : 
U  S  Bureau  of  Crop  Estimates  (Formerly  Bureau  of  Statistics), 
Farmers'  Bulletins  Nos.  570,  575,  584,  629,  651,  665;  U.  S.  Census 
Office  Bulletins  Nos.  125,  128. 

» Thirteenth  U.  S.  Census,  Agriculture,  vol.  v,  p.  5iJb. 


e 


AGRICULTURAL  COMMERCE 


t(| 


ii 


TABLE  I 
Total  Value  of  Primary  Agricultural  Crops*  » 


Crop 


Cereals 

Cotton  and  cottonseed .  . 

Hay  and  forage 

Vegetables 

Fruits  and  nuts 

Forest  products  of  farms. 

Leaf  tobacco 

Minor  grains  and  seeds. . 

Sugar  crops 

Flowers  and  plants 

Nursery  products 

Other  minor  crops  (hemp 
hops,  etc.) 

Total 


1909 


$2,665,539,714 

824,696,287 

824,004,877 

418,110,154 

222,024,216 

195,306,283 

104,302,856 

97,536,085 

61,648,942 

34,872,329 

21,050,822 

18,068,658 


1899 


$5,487,161,223 


$1,482,603,049 

370,708,746 

484,254,703 

238,531,761 

133,048,721 

109,864,774 

56,987,902 

51,626,538 

32,604,689 

18,758,864 

10,123,873 

9,590,792 


Per  Cent. 
Increase 


$2,998,704,412 


79.8 
122.5 
70.2 
75.3 
66.9 
77.8 
83.0 
88.9 
89.1 
85.9 
107.9 

88.4 


83.0 


*  (Thirteenth  U.  S.  Census  1910,  Agriculture,  vol.  v.  p.  532.) 

The  value  of  the  primary  crops  in  diiferent  parts  of  the  United 
States  IS  graphically  shown  in  Map  No.  I. 

A  large  proportion  of  many  of  these  crops  enters  the  com- 
merce of  the  United  States,  not  directly,  but  indirectly  in  the 
form  of  cattle,  sheep,  hogs,  horses,  and  other  farm  animals; 
and  poultry,  eggs,  country  butter,  milk,  cream,  and  other 
country  dairy  products.  A  portion  is  also  retained  locally  for 
final  consumption  and  for  seed.  In  1914,  for  example,  39  3 
per  cent,  of  the  wheat  crop  was  not  shipped  out  of  the  coun- 
ties m  which  It  was  grown  and  similar  proportions  for  other 
leading  primary  crops  were  as  follows :  corn  81.4  per  cent 
oats  80.6  per  cent.,  and  barley  54.9  per  cent.  Corn,  oats,  bar- 
ley and  hay  are  commonly  known  as  the  "feed  crops"  and  the 
United  States  Bureau  of  Crop  Estimates  has  stated  that  dur- 
ing the  ^Ye  years  ending  in  1914,  85.6,  72,  47  and  83  per 
cent,  respectively  were  used  on  farms  for  food  and  seed  pur- 
poses.* In  the  case  of  some  primary  crops,  however,  such  as 
cotton  and  leaf  tobacco,  but  little  is  retained  locally,  the 

*  Farmers'  Bulletin,  No.  629,  p.  8. 


\ 


8 


AGRICULTURAL  COMMERCE 


^.    Livestock  on  Farms.— A  second  group  of  affrieultuml 
products  consists  of  'livestock  on  farms/'  thVtoS  value  oJ 

Horses  valued  at  over  two  billion  dollars  constituted  the  larg- 
est item  an  this  huge  aggregate,  yet  they  are  usually  of  less 
impor  ance  in  the  livestock  markets  than  the  meat-producing 
animals  because  vast  numbers  of  them  are  raised  for  use  on 
the  farms  rather  than  for  sale  in  distant  markets.  Many 
horses  and  also  mules  are  sold  in  the  livestock  markets 
throughout  the  United  States  but  the  commerce  in  iSock 

The  total  value  of  all  the  domestic  animals  sold  during  the 

$1,563  000,000.    The  census  returns  also  include  poultry  the 
value  of  fow  s  on  the  country's  farms  on  April  15,  1910,  being 

tTZ.  the  census  year  1909  at  $303,506,000.  Livestock  on 
farms  constitutes  mamly  a  secondary  agricultural  crop  for  it 
s  m  a  large  measure  dependent  upon  the  primary  crops  for 
Its  food  supply.  The  geographical  distribution  of  its  total 
value  IS  graphically  shown  in  Map  No.  II. 

S.  Animal  Products  Produced  on  Farms.— A  third  im- 
portant group  of  agricultural  crops-also  secondaiy-<3onsists 
of  livestock  products  produced  on  farms.  The  total  annual 
value  of  the  country's  dairy  products  exclusive  of  milk  and 
cream  consumed  on  the  farms  exceeds  $600,000,000     Their 

!ooonn  '      '/°f  ?:''^  "^'^^  '^^''  ^  ^^^  '^^^^  of  $252,- 
400,000  country  butter  valued  at  $232,800,000,  butter  fat  in 

terms  of  which  much  milk  and  cream  are  sold  to  cheese  and 

butter  factories  amounting  to  $82,300,000,  sales  of  cream 

amounting  to  $32,600,000  and  smaller  amounts  of  country- 

made  cheese.^    Butter,  cheese  and  condensed  milk  valued  at 

•  Thirteenth  V  8   Census,  Agriculture,  vol.  v,  p.  327. 
'See  chapa.  viii,  ix.  ,  r   •""• 

•  Thirteenth  U.  S.  Census,  Agriculture,  vol.  v,  p.  474. 


9 


10 


AGRICULTURAL  COMMERCE 


$274,500,000,  moreover,  were  produced  in  factories,  but  such 
dairy  products  are  virtually  manufactures  and  are  marketed 
differently  from  agricultural  products.  Other  livestock  prod- 
ucts of  great  importance  in  the  commerce  of  the  United  States 
are  eggs,  which  were  in  the  census  year  1909  valued  at 
$306,689,000,  meat  animals  slaughtered  on  farms  valued  at 
$270,239,000,  wool  and  mohair  at  $66,374,000,  and  honey  and 
wax  at  nearly  $6,000,000. 

Foreign  Commerce  in  F^rm  Products.— While  the  com- 
merce in  American  farm  products  is  mainly  domestic  they  also 
constitute  the  basis  for  a  huge  export  trade,  and  although  the 
United  States  is  the  world's  leading  agricultural  country, 
astoundingly  large  quantities  of  farm  products  are  imported 
from  abroad.  In  1913  the  agricultural  exports  of  the 
United  States,  including  prepared  foodstuffs  derived  from 
farm  products,  were  valued  at  $1,123,000,000,  and  agricul- 
tural commodities  valued  at  $815,000,000  were  imported  from 
foreign  countries.  Few  phases  of  the  commerce  in  the  agri- 
cultural crops  are  of  greater  interest  than  the  developments 
which  are  taking  place  in  the  country's  international  trade.^ 


BIBLIOGRAPHY 

The  principal  sources  of  information  are  appended  to  sub- 
sequent chapters,  but  the  following  may  be  consulted  in  con- 
nection with  the  commerce  in  such  crops  as  are  not  hereafter 
described  in  detail: 

*JoHNSON,  E.  R.    History  of  the  Domestic  and  Foreign  Com- 
merce of  the  United  States  (1915),  2  Vols. 
*McPherson,  Logan.    Railroad  Freight  Rate  in  Relation  to  the 
Industry  and  Commerce  of  the  United  -  States   (1909), 
chaps.  3,  4,  5. 
*Seibels,  W.  T.     Produce  Markets  and  Marketing  (1911). 
*SuLLiVAN,  J.  W.    Markets  for  the  People  (1913). 
*Weld,  L.  D.  H.     "Studies  in  the  Marketing  of  Farm  Prod- 
ucts," University  of  Minnesota  Studies  in  the  Social 
Sciences,  No.  4  (Feb.,  1915). 
United  States  Bureau  of  Crop  Estimates:     Miscellaneous  crop 
statistics.  The  Agricultural  Outlook  (1913  to  Apr.,  1915). 
^See  chap.  xviiL 


DEFINITIONS  AND  SCOPE 


11 


United  States  Bureau  of  Crop  Estimates:     The  Monthly  Crop 

Report  (May,  1915,  and  monthly  ^^^J^^^^^\...y 
, -The  Productions  and  Consumption  of  Dairy  Products, 

Farmers'  Bulletin  No.  177  (Feb.  15,  1915). 
United  States  Bureau  of  Foreign  and  Domestic  Commerce: 

"Utilization  of  Potatoes  in  Europe,"   Special  Consular 

Reports  No.   64   (1914). 
United   States   Bureau  of  Labor   Statistics:   /'f f^^^^^.f ^^^^^' 

from  Producer  to  Consumer,"  Bulletin  164  (1915). 
"Sugar  Prices  from  Producer  to  Consumer,    Bulletin  121 

(1913) 

United  State;  Bureau  of  Statistics:  "CoftofP'odu^g  Min- 
nesota Dairy  Products  1904-1909,"  Bulletin  88   (1911). 

"Hay  Crops  of  the  TTnited  States,  1866-1906,"  Bulletin 

No.  62  (1908).  ^  „  ^.      ,      „, 

, "Hop  Crop  of  the  United  States,  1790-1911,"  Circular  35 

ri9i2) 

"Hops'in  Principal  Countries,"  Bulletin  No.  50  (1907). 

^Totato  Crops  of  the  United  States  1866-1906,"  Bulletin 

-^icf  Crop^  of  the  United  States,  1712-1911,"  Circular 


United  s'tates  Census* Office:    Thirteenth  Census,  1910,  Agricul- 
ture, Vol.  Y   (1913).  \c      1     .•  J^crcr. 

♦United  States  Department  of  Agriculture:     Marketing  Eggs 

by  Parcels  Post  (1914). 
♦ ^Year  Book  1912,  for  special  papers  on  poultry,  eggs  and 

vegetables  (1913).  . 

-Year  Book  1910,  for  special  papers  on  cream,  cheese  and 


♦United  States  Industrial  Commission:  The  Distribution  and 
Marketing  of  Farm  Products,  Vol.  YI  (1901). 

"The  Cost  of  Living,"  The  Annals  of  the  American  Academy 
of  Political  and  Social  Science  (^^^^  }^^^]'    ■  ,  ., 

♦"Reducing  the  Cost  of  Food  Distribution,"  The  Annals  of  the 
American    Academy    of    Political    and    Social    Science 

(Nov.,  1913). 

*  Bef erences  designated  by  *  apply  also  to  chap.  ii. 


CHAPTER   II 

CLASSIFICATION  OF  AGRICULTURAL  MARKETS  AND 

MARKETING   PROCESSES 

The  number  of  trade  interests  engaged  in  the  distribution 
of  the  agricultural  crops  of  the  United  States  is  so  large,  their 
marketing  conditions  so  diverse,  and  the  area  throughout 
which  they  are  produced  and  distributed  so  extensive  that  no 
all-inclusive  system  of  agricultural  markets  and  of  trade  or- 
ganization has  been  universally  adopted.  Yet  the  various 
agricultural  trades  have  much  in  common,  and,  subject  to 
certain  exceptions,  a  general  system  of  markets  and  general 
marketing  processes  are  traceable. 


Classification  of  Agricultural  Markets 

In  their  flow  from  grower  to  consumer,  agricultural  com- 
modities usually  pass  through  one  or  more  of  four  types  of 
markets:  (1)  the  growers' local  market,  (2)  the  central  whole- 
sale market,  (3)  the  secondary  wholesale  market,  and  (4)  the 
retail  market.  In  many  instances  commodities  pass  through 
the  entire  system  or  chain  of  markets  while  in  others  the  dis- 
tribution is  more  direct. 

The  actual  markets  of  these  various  types  are  located  at 
different  points,  and  some  are  important  general  markets  for 
many  crops  while  others  are  of  special  importance  in  the  mar- 
keting of  but  a  single  farm  commodity.  The  principal  mar- 
kets for  numerous  farm  products  will  be  described  later  in 
dealing  with  the  trade  in  particular  crops. 

Grawers'  Local  Markets.— Although  the  growers  of  agri- 
cultural products  frequently  ship  their  crops  direct  to  large 
central  markets,  so  many  sell  to  local  buyers  that  thousands  of 

12 


CLASSIFICATION  OF  AGRICtJLTUKAL  MARKETS    13 

local  markets  have  sprung  up  throughout  the  farming  dis- 
tricts. These  markets  are  the  places  of  business  of  vast  num- 
bers of  local  dealers  of  many  types  who  stand  between  the 
farmers  and  the  primary  and  secondary  markets,  and  also  of 
numerous  local  retailers  and  consumers  who  purchase  for 
local  consumption.  They  are  the  homes  of  thousands  of  local 
grain  elevators,  warehouses,  cotton  gins,  cotton  yards,  stock- 
yards, fruit,  produce  and  leaf  tobacco  packing  houses,  stores 
and  other  local  mercantile  establishments. 

The  functions  of  the  growers'  local  markets  vary  with  the 
nature  of  the  commodity  handled,  whether  the  article  is  pur- 
chased for  shipment  to  outside  markets  or  for  local  consump- 
tion. They  also  vary  with  local  trade  conditions,  but  may  be 
generally  summarized  as  follows : 

1.  Growers'  local  markets  are  a  medium  for  gathering  or 
collecting  large  quantities  of  farm  products  from  the  pro- 
ducers. 

2.  They  provide  convenient,  nearby  wholesale  markets 
for  growers  who  do  not  desire  or  are  unable  to  ship  direct  to 
the  larger  outside  markets. 

3.  They  facilitate  shipment  to  outside  markets  by  pro- 
viding the  necessary  elevation  and  loading  facilities  and  con- 
centrating purchases  until  carload  lots  are  obtained. 

4.  They  frequently  serve  as  temporary  storage  places. 

6.  They  facilitate  the  initial  grading,  inspection,  weigh- 
ing, packing  or  other  preparation  of  many  farm  products 
before  they  arrive  at  the  central  markets. 

6.  In  some  instances  they  serve  as  local  retail  markets 
for  growers  who  are  frequently  able  to  sell  a  portion  of  their 
crops  to  local  retailers  and  consumers. 

Central  Wholesale  Markets.— One  of  the  distinguishing 
features  of  the  agricultural  trade  organization  is  that  a  large 
portion  of  the  country's  crops  is  concentrated  in  great  central 
markets  before  it  is  finally  sold  for  consumption.  There 
are  three  principal  groups  of  such  markets:  (1)  the  central 
markets  of  the  interior  which  are  variously  known  as  "pri- 
mary markets,''  "interior  points  of  concentration,"  interior 
wholesale  markets,  etc.;  (2)  the  "seaboard  markets"  of  the 


14 


AGRICITLTITRAL  COMMERCE 


Atlantic,  Gulf  and  Pacific  seaboards;  and  (3)  the  foreign 
central  markets  to  which  most  agricultural  exports  are  shipped 
for  distribution  throughout  foreign  countries.  The  difference 
between  these  central  wholesale  markets  is  sometimes  merely 
a  geographical  one,  but  farm  products  frequently  pass  through 
or  become  the  basis  for  trade  in  both  an  interior  and  seaboard 
market  before  they  are  finally  disposed  of,  and  agricultural 
exports  may  pass  through  the  entire  threefold  chain  of  central 
markets. 

These  central  markets  are  equipped  with  large  terminal 
elevators  and  warehouses,  exchanges,  auction  rooms,  livestock 
yards,  rail  and  water  transportation  facilities,  inspection 
rooms,  banking  facilities,  and  all  equipment  needed  for  the 
storage,  preparation,  handling,  purchase  and  sale,  insurance, 
shipment  and  financing  of  large  quantities  of  farm  products. 
Commissionmen,  brokers,  auctioneers,  wholesale  dealers  or 
jobbers,  central  distributors,  contractors,  exporters,  importers, 
speculators,  elevator  and  warehousemen,  bankers,  insurance 
men,  ship  brokers,  inspectors,  weighers,  freight  forwarders, 
trucking  agencies  and  other  commercial  interests  are  engaged 
in  the  wholesale  trade  which  is  conducted  in  these  markets. 
Many  of  them  are,  furthermore,  equipped  with  numerous  re- 
tail establishments  and  with  flour  mills,  cotton  or  woolen  mills, 
malt  houses,  meat  packing  plants,  tobacco  factories,  or  other 
consumers  of  farm  products  who  depend  upon  the  central 
wholesale  markets  as  a  direct  source  of  supply. 

The  functions  of  the  central  markets  for  farm  products 
vary  in  detail  but  may  be  generally  summarized  as  follows : 

1.  They  concentrate  enormous  quantities  of  American 
and  in  some  cases  of  imported  foreign  agricultural  products 
into  a  limited  number  of  markets. 

2.  They  provide  continuous  cash  markets  where  such  con- 
centrated farm  products  are  purchased  and  sold,  in  many  in- 
stances, in  accordance  with  established  trade  rules. 

3.  They  provide  extraordinary  facilities  for  long-time  as 
well  as  temporary  public  and  private  storage;  of  farm  products. 

4.  They  expedite  the  cleaning,  scouring,  mixing,  sorting 
and  preparation  of  commodities  which  do  not  arrive  in  ap- 


CLASSIFICATION  OF  AGRICULTURAL  MARKETS    15 

proved  market  condition  or  such  as  may  yield  increased  profits 
as  a  result  of  such  handling. 

5.  They  greatly  facilitate  the  sampling,  handling,  in- 
spection, grading,  weighing,  or  other  similar  trade  services 
incident  to  the  organized  sale  of  farm  products. 

6.  They  hasten  the  collection  and  dissemination  of  trade 

information. 

7.  They  facilitate  the  shipment  and  distribution  of  farm 
products  to  secondary  wholesale  and  to  retail  markets  as  they 
are  currently  needed. 

8.  The  central  markets  facilitate  the  establishment  of 
nation-wide,  and  in  some  cases  of  world-wide,  prices  for  many 
of  the  principal  farm  products— indeed  it  is  at  these  markets 
that  the  wholesale  prices  of  farm  products,  which  underlie 
both  growers'  and  retail  prices,  are  determined. 

9.  They  promote  speculation  in  farm  products  and  tend 
to  confine  it  to  established  rules.  In  the  cotton  and  grain 
trades  organized  speculation  dependent  upon  the  purchase  and 
sale  of  future  contracts  on  some  of  the  exchanges  has  become 
of  widespread  importance.^ 

10.  Although  the  central  markets  are  primarily  wholesale 
distributing  centers  many  are  also  centers  of  consumption, 
having  a  large  population  requiring  agricultural  foods  and 
numerous  industries  dependent  upon  agriculture  for  their 
raw  materials. 

Secondary  Wholesale  Markets.— There  are  many  large 
and  small  markets  where  farm  products  are  purchased  in 
wholesale  lots  but  which  differ  widely  from  the  central  whole- 
sale markets  in  that  they  are  primarily  centers  of  consump- 
tion rather  than  shipping  and  distributing,  price-making, 
trading,  concentrating  or  speculative  markets.  They  do  not 
regularly  perform  any  of  the  ten  central  market  functions 
enumerated  above  except  the  last-named. 

Such  markets  may  be  called  secondary  wholesale  markets, 

for  although  they  at  times  obtain  part  of  their  supply  of 

farm  products  direct  from  the  growers'  local  markets,  they 

are  mainly  supplied  from  the  great  central  markets.    All  the 

*  For  uses  of  organized  speculation  see  chap.  vii. 


16 


AGRICULTURAL  COMMERCE 


cities  and  communities  located  throughout  the  United  States 
and  in  many  foreign  countries  to  which  the  central  markets 
ship  farm  products  in  wholesale  lots  to  be  consumed  in  flour 
and  textile  mills,  cereal  manufacturing  plants,  tobacco  fac- 
tories, meat-packing  and  slaughtering  establishments,  malt 
houses,  etc.,  or  to  be  distributed  by  local  wholesale  and  retail 
houses  for  final  consumption,  are  markets  of  this  kmd. 

Retail  Markets.— Some  of  the  principal  farm  staples  such 
as  wheat,  rye  and  barley— except  for  feed  purposes— cotton, 
leaf  tobacco,  meat  animals  and  wool,  are  not  regularly  retailed 
in  their  crude  condition.  They  are  more  commonly  retailed 
after  having  been  converted  into  manufactured  or  prepared 
wares  such  as  flour  and  feed,  malt,  breakfast-  cereals,  bakery 
products,  textiles,  tobacco  manufactures,  meat  and  meat  prod- 
ucts, the  marketing  organization  of  which  differs  widely  from 
that  which  has  been  developed  in  the  agricultural  trades. 
Other  farm  products,  however,  such  as  fruits  and  produce, 
eggs,  oats,  corn,  hay,  straw,  milk  and  country  butter,  are 
more  generally  retailed,  and  retail  markets  for  them  have 
consequently  been  developed. 

The  retail  markets  in  many  cases  overlap  all  the  other 
types  of  markets  geographically,  for  farmers  may  often  retail 
a  portion  of  their  crops  directly  in  their  local  markets,  and 
wholesale  concerns  sometimes  conduct  a  retail  as  well  as  a 
wholesale  distributing  business.  The  retail  markets,  however, 
are  provided  primarily  by  that  multitude  of  small  and  large 
retail  dealers  who  purchase  farm  products  in  the  wholesale 
markets  or  from  the  growers  and  distribute  them  to  the  con- 
sumers in  relatively  small  lots. 

Classification  of  Marketing  Processes 

The  trade  interests  which  purchase  and  sell  farm  com- 
modities in  the  various  types  of  agricultural  markets  outlined 
above— growers,  local  buyers,  central  market  dealers,  secon- 
dary wholesalers,  retailers  and  consumers— pursue  different 
methods,  but  there  is  sufficient  similarity  between  the  various 


' 


i 


CLASSIFICATION  OF  AGRICULTURAL  MARKETS    17 

agricultural  trades  to  permit  of  a  general  description  of  their 
marketing  organization. 

Growers'  Sales.— The  producers  of  farm  products  usually 
sell  their  crops  either  in  their  local  markets  or  in  the  central 
wholesale  markets.  In  the  former  case  they  may  sell  to  local 
buyers  who  resell  in  the  central  markets,  or  to  local  retailers 
or  consumers  for  local  consumption.  Thus  grain  growers  may 
sell  to  local  dealers  of  various  kinds  who  operate  country  ele- 
vators and  warehouses,  cotton  growers  to  country  merchants  or 
agents  of  exporting  and  brokerage  companies,  stockmen  to 
local  livestock  dealers,  wool  growers  to  local  wool  dealers  and 
agents  of  central  wool  dealers  or  of  distant  woolen  mills,  and 
fruit  and  produce  growers  to  local  shippers,  distributors, 
brokers,  or  agents  of  wholesale  jobbers  or  "line  houses."  Or 
should  they  sell  for  local  consumption  they  may  deal  directly 
with  local  feed  and  seed  dealers,  local  flour  and  grist  mills, 
local  textile  mills,  local  butchers,  local  grocery  stores,  and 
nearby  canneries  and  manufacturers  of  prepared  fruit  prod- 
ucts, or  to  local  consumers  of  fresh  fruit  and  vegetables. 

Those  growers  who  sell  in  the  central  wholesale  markets 
may  either  consign  their  crops  to  central  commissionmen, 
brokers,  distributors  or  auction  companies,  or  they  may  sell 
through  their  own  terminal  salesmen.  The  former  or  con- 
signment trade  exceeds  the  latter  in  volume,  for  only  a  lim- 
ited number  of  large  growers  or  growers'  associations  have 
established  direct  salesmen  in  distant  central  markets.  Grow- 
ers sometimes  ship  direct  to  distant  secondary  wholesale  or 
retail  markets  but  their  local  and  central  market  sales  are  of 
predominant  importance. 

Growers'  sales  may  be  further  classified  according  to 
whether  they  are  made  individually  or  through  cooperative 
associations.  The  larger  number  of  growers  sell  individually 
but  the  rapid  growth  of  cooperative  associations  has  become 
one  of  the  features  of  the  agricultural  trades.  The  amazing 
number  of  cooperative  country  grain-elevator  companies,  cot- 
ton growers'  unions  and  warehouse  companies,  livestock  and 
wool-shipping  associations,  cooperative  wool  warehouse  con- 
cerns, fruit  and  produce  growers'  associations,  and  leaf  tobacco 


18 


AGRICULTURAL  COMMERCE 


associations  wlilcli  have  been  organized  in  various  parts  of 
the  United  States,  are  more  fully  described  in  later  chapters. 
Cooperative  marketing  is  also  conducted  through  a  multitude 
of  general  cooperative  stores,  cooperative  creameries  and 
cheese  factories,  and  cooperative  potato,  poultry  and  egg  ship- 
ping associations.  The  larger  number  of  growers'  associations 
are  local  concerns  which  displace  or  compete  with  local  dealers 
and  buyers,  and  ship  to  the  central  markets  on  consignment, 
but  a  growing  number  have  taken  an  additional  step  in  the 
marketing  organization  by  establishing  salesmen,  agents  or 
brokers  at  the  central  markets  with  a  view  to  obtaining  maxi- 
mum profits  and  eliminating  terminal  commissionmen.  Some 
cooperative  associations  do  not  actually  market  the  crops  of 
their  members  but  exert  an  influence  on  individual  sales  by 
providing  trade  information,  establishing  general  trade  rules, 
facilitating  loans,  inspection,  packing  and  grading,  recom- 
mending standard  minimum  prices,  diversified  crops  and 
storage,  or  in  oth6r  ways  more  fully  described  in  connec- 
tion with  particular  crops. 

Growers'  sales  differ  also  as  to  whether  they  are  made  at 
the  current  prices  ruling  in  the  local  or  central  markets  or  at 
contract  prices.  The  former  practice,  which  is  the  more  com- 
mon, constitutes  a  spot  sale ;  the  latter  a  future  contract  trans- 
action. In  many  cases  when  a  grower  contracts  to  deliver  his 
entire  crop  or  specified  quantities  of  potatoes  or  other  vege- 
tables, eggs,  milk,  wool,  leaf  tobacco,  sugar  beets  or  other 
products  at  agreed  prices,  he  is  "selling  short"  a  crop  which 
has  not  as  yet  been  harvested. 

When  selling  his  products  in  the  central  markets,  the 
grower's  sales  may  vary  according  to  the  place  and  manner 
of  delivery.  (1)  The  grower  may  sell  products  "to  arrive," 
that  is  before  they  have  actually  arrived  at  the  central  market, 
with  the  understanding  that  they  will  be  inspected,  graded 
and  weighed  upon  arrival  and  that  final  settlement  shall  be 
deferred  until  such  time.  (2)  He  may  sell  them  after  their 
arrival  but  while  they  are  still  in  freight  cars  or  vessels,  such 
sales  being  variously  known  as  "on  track,"  "in  car"  or  by 
other  terms  understood  in  the  trade.     (3)  He  may  have  his. 


CLASSIFICATION  OF  AGRICULTURAL  MARKETS    19 

products  stored  in  elevators  or  warehouses  to  be  sold  at  a 
later  date,  in  which  case  the  transaction  is  known  as  an 
"in  store"  sale.  Livestock  is  similarly  sold  at  the  central 
stockyards  after  the  animals  have  been  unloaded  from  the 
stock  cars,  although  in  this  case  the  seller's  purpose  is  not 
that  of  storage. 

Shipment  to  the  central  markets  may  also  differ  as  to 
whether  the  price  paid  includes  or  excludes  shipping  costs. 
"F.  o.  b."  transactions  require  the  delivery  of  the  commodi- 
ties free  on  board  at  the  local  or  other  agreed  shipping  point, 
the  freight  charges  and  other  shipping  costs  beyond  to  be  paid 
by  the  purchaser.  "C.'i.  f."  (cost,  insurance  and  freight) 
transactions  on  the  contrary  call  for  net  prices,  the  seller 
agreeing  to  pay  the  freight  charges  and  insurance  costs. 

Local  Dealers'  Sales. — Farm  products  purchased  from  the 
grower  by  local  consumers  or  by  dealers  who  resell  them  for 
local  consumption  are  essentially  simple  and  require  no  special 
description.  Those  which  are  purchased  by  local  dealers  for 
shipment  to  central  markets  are  disposed  of  in  any  of  the 
various  ways  pursued  by  growers  who  sell  in  the  central  mar- 
kets. The  practice  of  selling  without  the  assistance  of  central 
commissionmen  is,  however,  more  common  among  local  dealers 
than  among  growers.  A  larger  number  have  terminal  sales- 
men or  have  standing  contracts  with  central  dealers.  Many 
local  buyers,  moreover,  are  merely  the  local  salaried  agents  of 
large  central  dealers  or  manufacturers  who  instruct  them 
where  to  ship  their  purchases  and  arrange  for  the  resale  or  dis- 
position of  all  shipments.  Some  local  dealers,  likewise,  act  as 
local  commission  agents  or  brokers  for  central  market  buyers, 
receiving  a  commission  or  brokerage  fee  on  all  fruit,  wool  or 
other  farm  products  purchased  on  account  of  their  principals, 
but  having  no  voice  in  their  resale  at  the  central  markets. 

Central  Market  Trade  Organization.— One  of  the  chief 
characteristics  of  the  trade  in  agricultural  products  is  its  in- 
directness as  compared  with  the  trade  in  manufactures  and 
other  commodities.  A  large  share  of  the  countr/s  farm  crops 
before  they  reach  the  consumer  pass  through  central  market 
exchanges,  the  sales  of  which  are  made  indirectly  through 


20 


AGRICULTURAL  COMMERCE 


B 


authorized  exchange  brokers,  instead  of  passing  directly  from 

seller  to  purchaser. 

The  principal  method  of  marketing  farm  products  at  the 
central  markets,  therefore,  is  by  sale  on  organized  produce  ex- 
changes variously  known  as  boards  of  trade,  chambers  of 
commerce,  bourses  or  exchanges.     Some  of  them  are  general 
exchanges  on  which  many  kinds  of  farm  products  and  even 
non-agricultural  commodities  are  sold,  while  others  consti- 
tute special  markets  for  but  one  or  at  most  a  small  number  of 
articles.     Many  of  the  grain  exchanges,  such  as  the  Chicago 
Board  of  Trade  and  the  New  York  Produce  Exchange,  are 
examples  of  general  exchanges,  while  most  of  the  cotton,  to- 
bacco, wool,  livestock,  milk  and  dairy  produce  exchanges  are 
special  exchanges.     Produce  exchanges  may  also  be  divided 
into  spot  or  cash  and  speculative  or  future  markets,  the  mem- 
bers of  the  former  confining  their  activities  to  the  purchase 
and  sale  of  spot  produce  for  current  delivery  while  the  latter 
in  addition  deal  in  future  contracts  which  call  for  delivery 
at  some  future  time,  and,  as  is  more  fully  described  in  a  later 
chapter,^   are   frequently   fulfilled  without  the   delivery   of 
actual  farm  products. 

The  spot  or  cash  transactions  made  through  exchange 
members  are  most  commonly  conducted  on  the  basis  of  sam- 
ples selected  by  authorized  samplers  and  exhibited  on  the  floor 
of  the  exchange.  They  may  also  be  made  on  a  basis  of  duly 
established  grades  or  standards,  upon  a  combination  of  both 
samples  and  grades,  or  the  commodities  in  their  entirety  may 
be  exhibited  in  authorized  yards  or  warehouses  as  is  the  gen- 
eral practice  in  the  sale  of  livestock  and  to  some  extent  in  the 
sale  of  leaf  tobacco,  wool,  fruit  and  vegetables. 

The  farm  products  concentrated  in  a  given  central  market 
are  mainly  disposed  of  on  the  exchange  located  in  that  par- 
ticular center,  but  may  also  be  sold  on  exchanges  located  else- 
where. Large  quantities  of  grain  held  by  the  dealers  of  the 
primary  gram  markets  of  the  West,  for  example,  are  sold 
through  brokers  on  the  seaboard  grain  exchanges  on  the  basis 

of  authorized  samples. 

^  See  chap,  vii,  p.  140. 


CLASSIFICATION  OF  AGRICULTURAL  MARKETS    21 

The  ''future''  transactions  made  on  the  speculative  ex- 
changes are  based  upon  agreed  standard  or  basis  grades  of  a 
given  commodity,  the  terms  of  the  future  contract  and  of  the 
exchange  rules  specifying  what  grades  may  be  delivered  and 
how  price  differences  shall  be  settled  should  other  than  the 
basis  grade  be  delivered  when  the  contract  matures.  Three 
principal  groups  of  trade  interests  deal  in  "futures":  (1) 
merchants,  exporters  or  other  dealers,  millers  and  spin- 
ners who  desire  to  eliminate  or  reduce  the  speculative  risks 
resulting  from  fluctuations  in  the  price  of  grain,  cotton  or 
mill  products  which  they  have  on  hand  or  have  privately  con- 
tracted to  deliver  or  accept,  frequently  sell  or  purchase  futures 
to  hedge  their  spot  transactions;  ^  (2)  speculators  who  deal  in 
future  contracts  with  a  view  to  obtaining  profits  from  fluc- 
tuations in  future  prices;  (3)  flour  millers  and  cotton  spin- 
ners who  sometimes  purchase  future  contracts  on  the  ex- 
changes and  require  the  delivery  of  grain  or  cotton  upon  ma- 
turity, but  the  use  of  futures  for  this  purpose  has  been  limited 
because  the  seller  may  usually  deliver  any  one  or  more  of  a 
number  of  different  grades. 

Farm  products  are  at  times  sold  at  auction  sales.  It  is  in 
some  cases  difficult  to  clearly  distinguish  between  exchange 
and  auction  markets,  but  the  distinguishing  feature  of  the 
latter  is  that  the  sales  on  them  are  made  through  one  or  a 
limited  number  of  auctioneers  who  offer  the  auctioned  prod- 
ucts directly  to  the  highest  bidders  who  may  or  may  not  be 
members  of  an  established  trade  organization,  while  the  sales 
on  the  exchanges  are  the  result  of  bids  and  offers  between  any 
of  a  large  number  of  exchange  members  who  act  for  them- 
selves or  as  brokers  for  their  customers. 

The  auction  sales  in  the  large  central  fruit  and  vegetable 
markets  are  especially  common  and  are  typical.  They  are 
conducted  through  auction  companies  which  exhibit  samples 
of  fruit  or  produce  owned  by  them  or  placed  in  their  care  by 
growers,  local  shippers,  importers,  commissionmen,  central 
dealers  or  others  and  sell  them  through  auctioneers  to  the 
highest  bidders.    The  leaf  tobacco  auction  sales  of  the  South 

^Hedging  is  described  in  chap,  vii,  p.  156. 


22 


AGRICULTURAL  COMMERCE 


CLASSIFICATION  OF  AGRICULTURAL  MARKETS    23 


are  also  important,  but  instead  of  being  controlled  by  special 
auction  companies,  are  conducted  on  the  floors  of  public  to- 
bacco warehouses  and  usually  in  accordance  with  trade  regula- 
tions imposed  by  tobacco  exchanges  or  public  authority. 

Many  farm  products  are,  also,  sold  privately  in  the  central 
markets.  Central  commissionmen,  brokers,  distributors, 
wholesale  dealers  or  jobbers,  contractors,  exporters,  importers, 
etc.,  frequently  deal  directly  with  local  shippers  or  growers, 
with  each  other,  with  flour  and  textile  mills,  malt  houses,  or 
other  consumers,  or  with  secondary  wholesale  and  retail  es- 
tablishments. Such  private  transactions,  as  in  the  case  of 
exchange  sales,  may  call  either  for  immediate  or  future  deliv- 
ery. Private  future  contracts,  however,  usually  provide  for 
the  delivery  of  a  particular  grade  or  quality  of  produce  at  a 
specified  date  and  at  a  designated  place  which  may  be  located 
anywhere  in  the  world.  They  are  cash  contracts  which  differ 
in  detail  and  are  made  by  persons  who  intend  to  demand  or 
make  actual  delivery.  A  relatively  small  number  of  large 
cities  have  established  wholesale  municipal  markets  where  ag- 
ricultural foods  may  be  distributed  through  private  or  auction 

sales. 

Secondary  Wholesale  Market  Transactions. — Secondary 
wholesale  markets  ordinarily  do  not  contain  organized  ex- 
changes, the  wholesale  buyers  in  them  purchasing  their  sup- 
plies of  farm  products  in  the  central  markets,  from  local  deal- 
ers or  growers  in  the  local  markets,  or  from  salesmen  or 
brokers  who  canvass  the  secondary  markets  for  central  dealers 
or  distributors.  When  purchasing  in  the  central  markets  any 
of  the  trade  methods  there  available  may  be  pursued. 

The  wholesale  purchasers  of  the  secondary  markets  are  of 
three  principal  types:  (1)  industrial  concerns  such  as  flour 
mills,  cotton  or  woolen  mills,  meat-packing  and  slaughtering 
plants,  malt  houses  and  tobacco  factories,  which  purchase  in 
wholesale  lots  for  consumption;  (2)  wholesale  dealers  in  prod- 
ucts such  as  fruit  and  vegetables,  dairy  products,  hay,  straw 
and  oats,  who  purchase  to  resell  either  to  retailers  or  con- 
sumers; and  (3)  retail  stores  purchasing  in  wholesale  quanti- 
ties for  resale  in  smaller  lots  to  consumers. 


!l 


h 


Retail  Sales. — Such  farm  products  as  are  retailed  to  con- 
sumers are  also  handled  through  three  main  channels : 

1.  A  large  group  of  general  and  special  retail  dealers,  in- 
cluding general  retail  grocers  operating  individually,  in 
chains,  or  as  members  of  retail  associations ;  special  fruit  and 
produce  retailers;  delicatessen  retailers;  hucksters  and  ven- 
dors ;  milk  dealers  or  contractors ;  retailers  of  dairy  products ; 
and  grain,  hay,  straw  and  feed  dealers. 

2.  General  and  special  wholesale  dealers  who  conduct  a 
retail  as  well  as  a  wholesale  business. 

3.  Growers  or  producers,  especially  those  located  near  the 
retail  markets,  who  sell  directly  to  the  consumers. 

Retailers  of  farm  products,  other  than  those  who  are  grow- 
ers or  producers,  obtain  their  supplies  either  from  nearby 
wholesale  dealers  or  from  any  of  the  various  sources  which 
supply  the  wholesale  trade.  Their  retail  sales  are  made  di- 
rectly to  consumers  in  numerous  ways.  They  sell  (1)  cur- 
rently at  private  retail  stores  or  other  established  private 
places  of  business;  (2)  currently  at  the  consumers'  premises 
as  is  the  custom  of  hucksters  and  vendors  of  fruit  and  vege- 
tables and  of  such  retail  stores  as  daily  send  solicitors  to  the 
consumers  or  use  their  delivery  service  for  soliciting  purposes ; 
(3)  by  obtaining  a  permanent  order  or  agreement  to  deliver 
specified  quantities  of  milk  or  other  products  until  notified 
to  the  contrary;  and  (4)  at  public  or  municipal  markets. 

Growers  or  producers  likewise  retail  chiefly  in  the  four 
ways  mentioned  in  the  preceding  paragraph.  Their  perma- 
nent retail  stores,  however,  are  relatively  of  least  importance, 
consisting  mainly  of  general  cooperative  stores,  most  of  which 
are  organized  primarily  to  purchase  groceries  and  general  mer- 
chandise and  for  the  profit  anticipated  from  the  sale  of  such 
wares  to  outside  customers  rather  than  as  important  means 
for  selling  farm  products.  Growers  retail  mainly  at  the  con- 
sumers' premises,  either  currently  or  on  the  basis  of  standing 
orders,  and  in  municipal  markets.  Livestock  is  frequently 
retailed  at  open  markets  known  as  '^cattle  fairs,"  "horse  mar- 
kets,'^ etc.,  where  livestock  may  on  agreed  days  be  sold  pri- 
vately or  at  retail  auctions.     Small  quantities  of  eggs,  fruits 


24 


AGRICULTUKAL  COMMERCE 


and  produce  have  been  retailed  through  the  medium  of  ex- 
press companies  and  the  parcels  post  service. 

Municipal  markets  for  the  sale  of  vegetables,  fruit,  eggs, 
butter,  poultry  and  other  farm  produce  and  foodstuffs  by 
growers  and  dealers  have  been  established  in  most  large  and 
in  many  smaller  cities.  Some  of  them  are  open-air  or  curb- 
stone markets  and  others  covered  or  inclosed  markets.  Most 
of  them  are  strictly  retail  markets  while  others  are  used  both 
for  wholesale  and  retail  selling.  Some  are  operated  free  of 
charge  while  others  require  growers  and  dealers  to  pay  a 
license  fee  or  an  annual,  monthly,  weekly  or  daily  rental. 
The  sales  in  these  markets,  moreover,  may  be  made  from  wag- 
ons and  trucks  or  from  fixed  stands,  and  they  may  or  may  not 
be  subjected  to  public  inspection.  The  establishment  of  mu- 
nicipal retail  markets  for  growers  has  been  facilitated  by  the 
rise  of  the  freight  trolley,  motor  truck,  parcels  post,  local 
water  transportation  and  railroad  "market  shipment"  ser- 
vices. 

There  is  at  present  much  agitation  in  favor  of  establishing 
a  larger  number  of  municipal  markets  in  the  larger  cities. 
There  are  also  some  who  desire  the  establishment  of  large 
wholesale  or  terminal'municipal  markets  where  farm  products 
of  many  kinds  received  from  distant  as  well  as  from  nearby 
growers  could  be  properly  inspected  upon  arrival  and  either 
retailed  in  small  lots  by  the  growers  or  distributed  to  retail 
dealers  and  large  consumers  in  wholesale  lots,  privately  or  at 
auction  sales  conducted  by  bonded  municipal  auctioneers. 

Consumers'  Purchases.  —As  the  growers  of  farm  products 
stand  at  one  extreme  of  the  agricultural  trade  organization  so 
the  consumers  stand  at  the  other.  Consumers  may  purchase 
in  any  of  the  various  groups  of  markets,  and  at  any  step  in  the 
trade,  machinery  provided  for  the  purchase  and  sale  of  farm 
commodities.  Some  of  them  purchase  directly  from  the  farm- 
ers or  from  local  market  dealers,  some  purchase  in  the  central 
markets  from  any  of  the  wholesale  trade  interests  located  there 
or  in  the  secondary  wholesale  markets  from  wholesale  dealers 
stationed  at  such  points,  and  others  obtain  farm  products  from 
agricultural  retail  dealers.    The  description  of  the  agricul- 


\ 


CLASSIFICATION  OF  AGRICULTURAL  MARKETS    25 

tural  trade  organization  may  begin  either  with  the  growers  or 
the  consumers  and  since  the  former  method  facilitates  discus- 
sion and  obviates  undue  repetition  it  has  been  adopted  in 
this  and  succeeding  chapters. 

The  increased  cost  of  foodstuffs  has  in  recent  years  en- 
couraged the  formation  of  ''consumers'  leagues"  or  associa- 
tions which  in  most  instances  endeavor  to  instill  publicity 
into  the  marketing  organization  and  to  instruct  consumers 
how  to  purchase,  although  they  sometimes  in  order  to  reduce 
retail  prices  undertake  the  purchase  and  resale  of  agricultural 
foods.  Cooperative  consumers'  retail  stores  have  also  been 
organized  in  a  few  cities. 


Exporting  and  Importing  Methods 

Agricultural  Export  Methods. — Many  trade  interests  are 
engaged  in  the  exportation  of  American  farm  products,  and  as 
will  be  shown  in  subsequent  chapters  the  methods  of  exporting 
are  not  uniform.  Most  of  the  various  kinds  of  agricultural 
exporting  concerns  may,  however,  be  divided  into  three  prin- 
cipal groups : 

1.  American  Exporting  Concerns. — American  exporters 
who  handle  farm  products  on  their  own  account  may  be  either 
general  or  special,  the  former  shipping  a  variety  of  commodi- 
ties, and  the  latter  one  or  at  most  a  small  number  of  farm 
products.  Most  of  them  are  specialized,  a'^d  many  are  en- 
gaged in  domestic  as  well  as  in  foreign  commerce.  Thus, 
much  grain  is  exported  by  terminal  grain-elevator  companies, 
central  market  grain  dealers  and  special  grain-exporting  con- 
cerns. Most  of  the  cotton  is  shipped  by  American  cotton-ex- 
porting companies  or  brokerage  concerns;  most  export  cattle 
by  the  large  meat-packing  houses  and  by  special  livestock  ex- 
porting concerns;  and  much  leaf  tobacco  by  subsidiaries  of 
tobacco  manufacturing  concerns  or  by  special  leaf  tobacco 
dealers  and  packers.  The  headquarters  of  these  exporting 
concerns  may  be  either  in  the  central  markets  of  the  interior 
or  in  the  seaboard  markets. 


Ill 


2e 


AGRICULTURAL  COMMERCE 


2.  American  Commission  Houses. — A  portion  of  the  agri- 
cultural exports  is  handled  by  domestic  commission  houses, 
which  may  likewise  be  either  general  or  special.  Indeed  the 
exporting  concerns  mentioned  above  sometimes  fill  orders  on  a 
commission  basis  instead  of  buying  and  selling  on  their  own 
account. 

S.  Foreign  Agents. — Foreign  importers  at  times  send 
agents  to  the  United  States  to  purchase  American  farm  prod- 
ucts. The  practice  is  especially  common  in  the  exportation 
of  leaf  tobacco,  but  it  exists  also  in  other  branches  of  the  agri- 
cultural export  trade. 

The  exporters  of  farm  products  make  their  purchases  in 
any  of  the  markets  and  in  any  of  the  various  ways  in  which 
agricultural  commodities  are  purchased  for  doniestic  use. 
They  ship  them  to  foreign  import  houses,  wholesale  dealers, 
commissionmen,  brokers,  and  sometimes  directly  to  foreign 
consumers.  They  dispose  of  them  both  by  private  sale  and  on 
foreign  or  American  exchanges,  and  in  many  instances  they 
merely  fill  orders  which  they  have  received  from  abroad.  In 
the  foreign  trade,  sales  to  foreign  buyers  are  very  frequently 
made  on  the  basis  of  grades  or  agreed  standards  rather  than 
on  the  basis  of  samples,  for  the  foreign  markets  are  far  re- 
moved and  a  vessel  load  of  grain,  cotton  or  other  farm  staple 
may  be  resold  by  the  original  importers  long  before  its  arrival. 

The  trade  machinery  is  unusually  well  organized  in  the 
agricultural  export  trade.  Foreign  and  American  exchanges 
and  commercial  houses  are  connected  by  cable;  orders  based 
upon  established  grades  or  standards  can  be  readily  trans- 
mitted ;  and  trade  customs  and  practices  are  of  long  standing 
and  are  well  understood  by  all  parties  concerned.  For  these 
reasons  and  because  of  the  relative  ease  with  which  markets 
can  be  found  for  foods  and  raw  materials,  many  of  the  costly 
marketing  methods  which  are  necessary  in  the  exportation  of 
manufactures  are  not  essential  to  the  successful  exportation  of 
American  farm  products. 

Agricultural  Import  Methods. — There  is  even  less  uni- 
formity in  the  methods  of  importing  farm  products,  for  the 
imports  include  a  wider  variety  of  commodities  and  are  ob- 


CLASSIFICATION  OF  AGRICULTURAL  MARKETS    27 

tained  from  an  amazingly  wide  range  of  countries.  Many  are 
imported  from  the  more  recently  opened  trade  regions  of  the 
world  rather  than  from  the  well-established  countries  of  west- 
ern Europe.^ 

They  are  imported  principally  by  three  groups  of  concerns : 

1.  American  Import  Houses.— There  are  many  special 
and  general  importers  who  purchase  foreign  agricultural  prod- 
ucts on  their  own  account  with  a  view  to  reselling  them  to 
coffee  roasters,  sugar  refineries  or  other  consumers  or  dealers. 

2.  American  Import  Commission  Houses. — Some  agricul- 
tural imports  are  handled  on  commission  by  concerns  to  whom 
they  have  been  consigned  or  to  whom  purchasing  orders  have 

been  given. 

3.  American  Consumers. — ^American  manufacturers,  par- 
ticularly those  requiring  large  quantities  of  raw  agricultural 
materials,  sometimes  import  directly  from  foreign  exporters. 
For  the  production  of  some  commodities,  such  as  bananas, 
leaf  tobacco,  and  sugar,  American  traders  and  manufacturers 
at  times  own  foreign  plantations  on  which  they  produce  a 
portion  of  their  requirements. 

Imported  farm  products  are  variously  purchased  from  for- 
eign export  houses,  wholesale  dealers,  commissionmen,  brokers, 
central  sugar  refineries  or  other  middlemen,  or  directly  from 
foreign  producers.  They  are  sometimes  purchased  in  the 
country  in  which  they  are  produced  and  at  other  times  indi- 
rectly in  England,  Holland,  Belgium,  Germany  or  other  Euro- 
pean countries  where  wool  and  other  products  are  concen- 
trated for  resale  and  transshipment.  They  are  variously  pur- 
chased privately,  on  exchanges,  or  at  public  auction  sales. 
Bids  and  offers  may  be  made  by  cable  or  mail,  standing 
arrangements  with  foreign  exporters  or  commissionmen  may 
be  made,  and  numerous  American  buyers  are  sent  abroad  so 
as  to  reduce  costs  and  obtain  the  quality  of  products  desired 
at  favorable  prices.  When  foreign  agricultural  products  are 
imported  to  be  resold  in  the  United  States  they  are  disposed 
of  privately,  on  exchanges  or  at  auction  sales  i^  the  same 
manner  that  domestic  farm  products  are  sold  in  the  wholesale 

*See  chap,  xviii. 


I 


28 


AGRICULTUKAL  COMMERCE 


markets.  Some  imported  farm  products,  such  as  green  coffee, 
raw  sugar  and  wool,  are  frequently  sold  on  organized  Amer- 
ican exchanges,  but  in  the  agricultural  import  trade  as  a 
whole  such  sales  are  less  common  than  in  the  export  trade. 

Although  the  agricultural  trades  are  similar,  the  districts 
in  which  they  are  produced,  their  markets,  the  methods  of 
buying  and  selling,  shipping,  inspecting,  grading,  storing  and 
otherwise  handling  them,  the  extent  and  manner  of  public  or 
exchange  control,  the  methods  of  collecting  trade  information, 
and  the  factors  influencing  their  prices,  all  differ  in  many  re- 
spects. The  purpose  of  subsequent  chapters  is  to  describe 
the  trade  in  some  of  the  principal  farm  crops  in  greater 
detail. 

BIBLIOGRAPHY 

(See  references  appended  to  Chapter  I  designated  by  a  *.) 

BAKiEY,  L.  H.     Cyclopedia  of  American  Agriculture  (1909), 

Vol.  iv,  pp.  215-269. 
Cross,  Ira  B.    Cooperation  in  California,  American  Economic 

Review  (Sept.,  1911). 
Hough,  B.  O.    Elementary  Lessons  in  Exporting  (1909),  pp. 

1-108. 

Ocean  Traffic  and  Trade  (1914),  chaps.  8,  9,  13  and  14. 

King,  C.  L.     Trolley  Light  Freight  Service  and  Philadelphia 

Markets  (Oct.,  1912). 
Sparling,  S.  E.    Business  Organization  (1906),  chaps.  8  to  11. 
Weld,  L.  D.  H.      Statistics  of  Cooperation  Among  Farmers  in 

Minnesota,    1913,    Minnesota    Agricultural    Experiment 

Station,  Bulletin  No.  146  (1914). 
New  York  Mayor's  Market  Commission:    Keport  of  (1913). 
United  States  Industrial  Commission:     The  Distribution  and 

Marketing  of  Farm  Products,  Vol.  6,  Part  I  (1901). 

(For  references  on  markets  for  particular  commodities  and  par- 
ticular phases  of  trade  organization,  see  bibliographies 
appended  to  subsequent  chapters.) 


I 


CHAPTEK   III 

THE   COUNTRY   GRAIN   ELEVATOR   AND   WAREHOUSE 
SYSTEM:     THE  LOCAL   GRAIN  MARKET 

Functions  of  Country  Elevators  and  Warehouses. — Before 
that  portion  of  the  country's  grain  crop  which  is  marketed  by 
the  growers  is  concentrated  at  a  relatively  small  number  of 
great  primary  grain  centers  it  passes  through  thousands  of 
local  grain  markets.  The  grain  farmer's  markets  are  ordi- 
narily not  the  huge  elevators  found  at  the  central  grain  mar- 
kets of  the  interior  and  the  seaboard,  but  the  thousands  of 
small  country  elevators  and  warehouses  which  are  scattered 
throughout  the  two  hundred  million  acres  which  produce  the 
country's  principal  grain  crops.  The  sales  of  many  thousands 
of  grain  growers  of  the  United  States  are  made  principally  at 
the  country  elevators  and  warehouses  which  constitute  the  first 
link  in  the  extensive  trade  and  shipping  organization  which 
has  been  evolved  for  the  sale  and  distribution  of  the  grain 
crops.  As  is  shown  in  Table  II  they  annually  handle  over 
four  hundred  million  bushels  of  wheat,  over  five  hundred 
million  of  corn,  over  three  hundred  million  of  oats,  from 
ninety  to  one  hundred  million  bushels  of  barley,  and  smaller 
quantities  of  rye,  flaxseed  and  other  minor  grains. 

As  is  stated  by  the  Bureau  of  Labor  Statistics  in  a  recent 
publication :  ^'The  province  of  the  country  grain  elevator  is 
to  supply  a  market  to  the  farmer  for  his  grain,  to  afford  a 
temporary  storing  place  for  grain  going  to  market,  and  to 
provide  an  easy  means  of  transferring  it  from  the  farmers' 
wagon  to  the  car  for  shipment."  ^ 

*  *  *  Wheat  and  Flour  Prices  from  Farmer  to  Consumer, ' '  Bulletin 
No.  130,  p.  17. 

29 


30 


AGRICULTUKAL  COMMERCE 


Geographical  Distribution  of  the  Local  Grain  Trade 

nistribution  af  Local  Wheat  Trade.— The  TJnited  States 
has  in  recent  years  raised  over  seven  hundred  million  bushels 
of  wheat  annually,  having  a  farm  value  of  from  $500,000,000 
to  $600,000,000.  At  present  the  country's  annual  wheat  crop 
is  second  only  to  that  of  Russia,  and  for  many  years  it  ex- 
ceeded that  of  any  foreign  country.  American  wheat  exports, 
owing  to  largely  enhanced  home  requirements,  have  steadily 
declined  during  the  twentieth  century,  and  prior  to  the  Euro- 
pean War  were  exceeded  by  those  of  Russia  and  Argentina. 
Indeed,  were  it  not  for  the  exports  of  American  wheat  flour, 
the  exports  of  wheat  from  the  United  States  would  also  be 
exceeded  by  those  of  Roumania,  Canada,  Australia  and  British 
India,  in  each  of  which  countries  there  is  a  growing  surplus 
as  there  was  in  the  United  States  during  the  eighties  and 
nineties.  Before  the  outbreak  of  the  European  War  but  10  to 
19.5  per  cent,  of  the  American  wheat  crop  had  been  exported 
during  recent  years  as  compared  with  21  to  41.5  per  cent, 
during  the  years  1875  to  1900. 

The  wheat-growing  area  of  the  United  States  has  been 
spread  over  such  a  wide  territory  that  there  is  little  likelihood 
of  a  general  crop  failure.  Local  failures  are  not  uncommon, 
but  the  diversity  in  variety  of  wheat  and  geographical  loca- 
tion tends  to  maintain  a  high  average  crop.  During  the  year 
1913,  the  order  of  importance  of  the  principal  wheat-growing 
states  was:  North  Dakota,  Kansas,  Minnesota,  Nebraska, 
Washington,  Illinois,  Indiana,  Missouri,  Ohio,  South  Dakota, 
Pennsylvania,  Montana,  Oklahoma,  Iowa  and  Oregon — ^but 
their  relative  position  changes  from  year  to  year.  In  1912, 
for  example,  the  wheat  crops  of  Illinois,  Indiana  and  Ohio 
were  partial  failures  while  those  of  North  and  South 
Dakota  and  Kansas  were  the  largest  in  the  history  of  those 

states. 

As  is  shown  in  the  accompanying  map  (No.  Ill),  the 
wheat-growing  area  may  be  divided  into  four  principal  dis- 
tricts.   The  first  or  soft  winter  wheat  belt  comprises  the  states 


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31 


32  AGKICULTURAL  COMMERCE 

lying  east  of  the  Mississippi  and  north  of  the  Ohio  River  from 
western  Pennsylvania  to  Illinois.  The  second  comprising  the 
central  trans-Mississippi  Valley:  Kansas,  Nebraska,  Missouri, 
Oklahoma,  and  Iowa-extending  as  far  west  as  the  Great 
Plains— grows  chiefly  the  various  varieties  of  hard  winter 
wheat.  The  third,  or  spring  wheat  belt,  includes  North  and 
South  Dakota  and  Minnesota.  The  fourth  includes  the  wheat 
fields  of  the  Pacific  Slope :  Washington,  Oregon,  Idaho  and 
parts  of  California— where  both  spring  and  winter  wheat  are 
grown.  The  rapidly  expanding  wheat  fields  of  Montana  may 
either  be  included  in  the  last-named  district  or  regarded  as 
the  leading  producers  in  a  fifth  or  Rocky  Mountain  wheat 

•LI  J. 

The  Department  of  Agriculture  estimates  that  during  the 
decade  ending  in  1915,  57.7  per  cent,  of  the  country's  wheat 
crop  reached  the  grain  market,  i.  e.,  was  shipped  out  o±  the 
county  in  which  it  was  grown.  The  remainder  was  retamed 
bv  the  wheat  growers  for  seed,  locally  ground  mto  flour  or 
feed  or  sold  for  local  consumption.  Most  of  the  350,000,000 
to  540  000,000  bushels  which  annually  entered  the  country  s 
grain  trade  was  handled  locally  by  country  elevators  or  ware- 
houses. .     .      1  •     m  ui 

Distribution  of  Local  Com  Trade.— As  is  shown  in  lable 
II  the  corn  crop  of  the  United  States  is  vastly  more  im- 
portant  than  the  wheat  crop.  In  1913  it  reached  the  enor- 
mous total  of  3,124,746,000  bushels  having  a  farm  value  of 
one  and  one-half  billion  dollars.  Over  70  per  cent,  of  the 
world's  annual  corn  crop  is  grown  in  the  United  States ;  its 
nearest  rivals-Austria-Hungary  and  Argentina-producmg 
less  than  300  million  bushels  each. 

Though  about  500  million  bushels  of  corn  annually  enter 
into  the  grain  trade  of  the  United  States,  grain  dealers  have 
always  been  primarily  concerned  with  the  wheat  crop.  This  is 
because  less  than  30  per  cent,  of  the  total  corn  crop  reaches 
the  country's  grain  markets.  Over  70  per  cent,  annually  is 
disposed  of  locally  for  seed  purposes  and  to  fatten  livestock. 
Much  the  larger  share  of  the  corn  crop  reaches  the  gram  trade 
only  after  it  has  been  converted  into  livestock  or  beef,  mutton 


i 


33 


84 


AGKICULTURAL  COMMERCE 


and  pork  products.^  Yet,  there  are  thousands  of  local  gram 
elcvatdrs  and  warehouses  which  handle  corn,  for  the  volume 
which  now  reaches  the  grain  trade  exceeds  that  of  wheat. 

As  is  graphically  shown  in  Map  No.  IV,  though  appreci- 
able quantities  of  corn  are  grown  throughout  the  southern 
states  and  in  various  regions  throughout  the  country,  there  is 
really  but  one  great  American  corn  belt,  and  it  extends 
through  the  Ohio  and  Mississippi  River  Valley  from  Ohio  to 
northern  Texas.  The  corn  fields  of  Iowa,  Illinois,  Missouri, 
Ohio,  Indiana,  Kansas,  Nebraska,  Texas  and  Oklahoma  pro- 
vide the  corn  market  with  most  of  its  annual  supply  and  feed 
vast  numbers  of  cattle,  sheep  and  hogs.  The  corn  belt  is 
located  principally  within  the  relatively  small  oval  indicated 

in  the  map. 

Bistribution  of  Local  Trade  in  Oats.— The  oats  crop  of 
the  United  States  {See  Table  II),  though  closely  rivaled  by 
that  of  Russia,  is  also  larger  than  that  of  any  foreign  country 
in  the  world.    So  large,  however,  are  the  crops  of  Russia,  Ger- 
many, Canada,  France,  Austria-Hungary,  Great  Britain,  Ar- 
gentina and  other  countries,  that  the  oats  fields  of  the  United 
States  produce  but  20  to  30  per  cent,  of  the  world's  crop. 
The  international  trade  in  both  oats  and  corn  is  small  as  com- 
pared with  that  of  wheat,  the  exports  of  American  oats  being 
almost  negligible  and  those  of  corn  in  recent  years  comprising 
from  li  to  4^  per  cent,  of  the  annual  crop.    As  in  the  case 
of  corn,  moreover,  much  the  larger  share  of  the  oats  crop  of 
the  United  States  is  retained  for  local  consumption  and  does 
not  enter  the  country's  grain  trade.    During  the  decade  ending 
in  1914  somewhat  less  than  30  per  cent,  of  the  annual  oats 
crop  was  shipped  out  of  the  county  in  which  it  was  grown.    To 
collect  300,000,000  bushels  of  oats  annually  from  the  thou- 
sands of  farmers  who  sell  a  portion  of  their  crop,  however, 
requires  a  large  number  of  country  grain  elevators  and  ware- 
houses.    Many  of  those  located  in  Iowa,  Illinois,  Minnesota, 
North  Dakota,  Ohio,  Wisconsin,  Indiana,  Nebraska,  South 
Dakota,  Kansas  and  Michigan,  regularly  handle  oats  as  well 

»N.  C.  Murray:    ''Disposition  of  Feed  Crops, '*  Farmers'  BuUe- 
tin  No.  629,  p.  8. 


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36 


AGKICtJLTUEAL  COMMERCE 


as  other  grains.  All  the  states  of  the  corn  belt  are  heavy  pro- 
ducers of  oats,  but  the  oats  crop  is  more  widely  scattered, 
for  oats  thrives  in  northern  states  such  as  Wisconsin, 
Michigan  and  in  the  states  of  the  spring  wheat  belt  where 
the   early  frosts  have  retarded  the  rapid   introduction   of 

corn. 

Distribution  of  Local  Trade  in  Barley.— The  barley  crop 
of  the  United  States  is  decidedly  smaller  than  that  of  wheat, 
com  or  oats  {See  Table  II).  The  greatest  barley-prod ucmg 
country  is  Russia  where  over  574,000,000  bushels  were  grown 
in  1913  as  compared  with  178,189,000  bushels  in  the  United 
States.  From  45  to  over  57  per  cent,  annually  of  the  Ameri- 
can crop  reaches  the  grain  market,  principally  in  Minnesota, 
California,  North  Dakota,  Wisconsin,  South  Dakota  and  Iowa. 
The  crops  of  other  minor  grains— rye,  buckwheat  and  flaxseed 
— are  shown  in  Table  II. 


Transfer  of  Grain  from  Grower  to  Country  Elevator  or 

Warehouse 

Length  and  Cost  of  Local  Hani.— Though  the  number  of 
country  elevators  and  warehouses  at  which  the  grain  growers 
sell  their  crops  is  increasing,  and  their  location  at  local  ship- 
ping points  is  arranged  with  reference  to  the  proximity  of 
the  grain  fields  as  well  as  with  reference  to  railroad  connec- 
tions, much  grain  requires  long  and  expensive  country  hauls. 
The  average  distance  from  the  wheat  fields  of  the  United 
States  to  the  local  markets  in  which  it  is  sold  was  in  1906 
reported  to  be  9.4  miles,  and  to  vary  from  4  to  22  miles  m 
different  states ;  ^  and  corn  was  in  that  year  hauled  by  the 
growers  to  the  country  elevator,  an  average  distance  of  7.4 
miles  in  the  United  States  as  a  whole  and  from  3.2  to  29.4 
miles  in  various  states.  The  average  distance  from  all  farms 
producing  crops  of  every  kind  to  the  local  markets  in  1915  is 

» ''Costs  of  Hauling  Crops  from  Farms  to  Shipping  Points,'' 
IT.  S.  Bureau  of  Statistics  (Department  of  Agriculture),  Bulletin 
No.  49. 


COUNTKY  ELEVATOR  SYSTEM 


37 


reported  to  be  6.5  miles,  and  from  the  more  remote  farms  8.7 
miles.^ 

The  average  cost  of  transporting  grain  to  the  local  mar- 
kets was  in  1906  reported  to  be  9  cents  per  100  pounds  in  the 
case  of  wheat  and  7  cents  in  the  case  of  corn.  Inasmuch  as 
railway-lake  rates  on  wheat  from  Chicago  to  New  York 
varied  from  5.02  to  7.01  cents  per  bushel  during  the  years 
1900  to  1913,  and  all-rail  rates  ranged  from  9.60  to  11.70 
cents,  it  is  evident  that  tjie  country  haul,  although  short  as 
compared  with  the  railroad  haul  to  or  from  the  central  grain 
markets,  is  an  important  consideration  in  the  local  grain  trade. 
The  Bureau  of  Statistics  of  the  Department  of  Agriculture 
estimated  that  the  cost  of  hauling  the  1905-1906  crop  of  corn, 
wheat,  oats,  barley  and  flaxseed  from  the  farms  to  local  ship- 
ping points  aggregated  over  $62,000,000.  The  cost  of  hauling 
corn  was  estimated  to  comprise  9.6  per  cent.,  wheat  7.2  per 
cent.,  oats  7.7  per  cent.,  barley  8.3  per  cent.,  and  flaxseed  5.3 
per  cent,  of  the  farm  value  of  the  loads  hauled. 

Methods  of  Local  Hauling. — Grain  is  conveyed  to  local 
shipping  points  by  various  methods.  Most  of  it  is  hauled  by 
the  growers  themselves,  and  is  regarded  as  a  secondary  source 
of  employment  for  the  equipment  and  drivers  whose  chief 
employment  is  on  the  farms.  Each  grower  may  perform  his 
hauling  individually,  or  neighboring  growers  may  perform  it 
cooperatively.  Some  grain  hauling,  however,  is  performed 
by  hired  "freighters,"  for  in  some  parts  of  the  Mississippi 
Valley  and  especially  in  the  Pacific  Slope  and  Rocky  Mountain 
grain  belts,  the  distances  to  local  shipping  points  are  so  long 
that  it  is  unprofitable  for  the  growers  to  maintain  sufficient 
equipment  and  drivers  to  perform  all  the  necessary  hauling. 
The  professional  freighters  haul  grain  and  other  farm  produce 
at  regular  tariffs  and  on  the  return  trip  frequently  transport 
farm  machinery,  supplies  or  merchandise.  Some  hauling  is 
also  done  by  the  elevator  companies. 

Grain  may  be  hauled  either  in  bulk  or  in  sacks,  and  it  may 
be  hauled  either  from  the  grower's  granary  or  direct  from  the 

*  U.  S.  Bureau  of  Crop  Statistics :  The  Agricultural  Outlook, 
Apr.  23,  1915,  and  Tarmers'  Bulletin  No.  672,  pp.  11-14. 


38 


AGKICULTURAL  COMMERCE 


COUNTRY  ELEVATOR  SYSTEM 


39 


threshing  machine  in  the  fields.  The  practice  in  these  mat- 
ters depends  upon  the  requirements  and  customs  of  particular 
markets,  the  method  of  harvesting,  the  financial  condition  of 
the  growers,  their  views  as  to  the  desirability  of  present  or 
future  marketing  and  other  local  considerations.  The  type  of 
equipment  used,  likewise,  varies  widely  and  depends  some- 
what upon  local  conditions,  such  as  the  length  of  haul,  the 
condition  of  the  roads,  and  the  method  of  hauling.  The  num- 
ber of  horses  or  mules  per  driver  varies  from  two  to  fourteen, 
the  number  of  wagons  per  haul  from  one  to  two  or  more,  and 
the  weight  of  grain  hauled  from  800  to  16,000  pounds.  The 
wagons  may  be  ordinary  farm  wagons,  or  vehicles  especially 
constructed  to  carry  grain  in  bulk,  and  they  may  be  hauled 
individually  or  in  trains.  Professional  freighters  sometimes 
haul  loads  of  seven  tons  in  one  freight  wagon  and  its  trailers, 
and  use  as  many  as  twelve  or  fourteen  horses  in  one  team. 
In  recent  years  there  are  instances  in  which  grain  has  been 
hauled  to  local  shipping  points  in  automobile  trucks. 


Description"  of  Country  Elevators 

Country  elevators  are  located  and  constructed  so  as  to  per- 
form their  various  functions  expeditiously.  In  every  impor- 
tant grain-growing  district,  except  on  the  Pacific  Slope  where 
most  of  the  grain  is  handled  in  sacks,  there  are  hundreds  of 
these  elevators  along  each  of  the  grain-carrying  railroads. 
Many  local  grain-shipping  points  are  equipped  with  five  or  six 
elevators,  and  at  most  local  markets  in  important  grain-grow- 
ing districts  there  are  at  least  two. 

Country  elevators  usually  have  a  capacity  of  only  20-  or 
25,000  bushels  and  consequently  cannot  store  large  volumes 
of  grain  for  long  periods  of  time.  Since  a  large  proportion 
of  the  grain  available  for  the  market  is  sold  by  the  growers 
during  the  ninety  days  after  its  harvesting,  they  are  so 
equipped  that  they  can  handle  whatever  quantities  are  brought 
to  them.  The  larger  elevators  handle  from  40-  to  300,000 
bushels,  some  handling  as  much  as  1,000,000  bushels  annu- 


i 


ally.  The  yearly  output  of  the  average  country  elevator  is 
100,000  bushels  or  less.  It  is  considered  that  an  annual  busi- 
ness of  100,000  bushels  of  wheat  bought  at  the  primary  market 
price  minus  the  freight  rate  and  a  price  margin  of  three  cents 
per  bushel  will  yield  a  fair  profit  on  the  investment.  The  con- 
struction and  equipment  cost  of  the  average  country  elevator 
is  about  $4,000,  although  the  cost  varies  from  $3,000  to 
$25,000. 

These  elevators  are  constructed  so  as  to  reduce  operating 
costs  to  a  minimum.  The  following  concise  description  is 
giv    .  by  the  Bureau  of  Labor  Statistics : 

The  country  elevator  is  so  constructed  as  to  call  for  very  little 
manual  labor.  The  farmer  drives  on  the  scales  with  his  loaded 
wagon,  which  is  weighed  in  gross,  then  drives  into  the  elevator 
shed  where  the  end  board  is  taken  from  the  wagon,  and  by  the 
pulling  of  a  lever  the  wagon  is  tipped  backward  and  all  the 
grain  runs  out  of  the  wagon  box  into  the  bin  below.  He  then 
drives  on  the  scales  again  and  the  empty  wagon  is  weighed. 
From  the  difference  in  these  weights  the  number  of  bushels  is 
computed  and  the  farmer  receives  a  certificate  of  weight  and 
possibly  at  the  same  time  a  check  for  his  grain.  The  wheat 
dumped  into  the  bin  below  the  wagon  floor  is  hoisted  by  elevat- 
ing machinery  to  a  bin  in  the  elevator  whence  it  is  spouted  into 
a  car  for  shipment.* 

The  ordinary  elevator  has  but  six  or  eight  bins  or  lofts 
into  which  the  grain  is  elevated  from  the  bins  below  the  wagon 
floor.  Fewness  of  separate  bins,  as  well  as  trade  considera- 
tions, leads  to  the  mixing  of  the  grain.  Indeed  one  source  of 
elevator  profit  is  the  skillful  mixing  of  different  grades  in 
such  a  way  as  to  raise  the  grade  of  a  part  of  the  grain  pur- 
chased from  the  farmers. 

The  operating  costs  of  the  average  country  elevator  are 
low  because  a  manager  and  from  one  to  three  helpers  are  able 
to  operate  it  even  during  the  busy  season,  and  one  or  two  men 
can  operate  it  during  the  months  of  dull  business.  In  the  case 
of  wheat  a  margin  of  3  cents  per  bushel  and  an  allowance  of 

*  *  *  Wheat  and  Flour  Prices  from  Farmer  to  Consumer, ' '  Bulletin 
No.  130,  p.  17. 


40 


AGRICULTUEAL  COMMERCE 


COUNTRY  ELEVATOR  SYSTEM 


41 


the  freight  rates  to  the  primary  market  is  considered  sufficient 
to  cover  operating  costs,  insurance,  inspection  fees,  "shrink- 
age" in  weight  incident  to  handling  the  grain  and  all  current 
expenses,  as  well  as  a  return  on  the  investment.  In  purchas- 
ing corn,  oats  and  barley  a  margin  of  1 J  to  2  J  cents  per  bushel 
is  ordinarily  allowed  in  computing  the  country  price,  while, 
owing  to  a  greater  degree  of  risk,  the  margin  in  local  pur- 
chases of  flaxseed  is  usually  5  or  6  cents  a  bushel. 

Ay 

Management  of  Country  Grain  Elevators 

Classification  of  Country  Elevators. — Country  grain  ele- 
vators are  owned  and  managed  in  three  principal  ways:  (1) 
by  "line  elevator  companies,''  (2)  hy  local  grain  dealers,  and 
(3)  by  farmers'  cooperative  elevator  associations  or  companies. 
In  addition  to  the  many  elevators  operated  in  these  ways,  a 
smaller  number  of  elevators  are  operated  (4)  by  mill  owners 
and  malting  concerns.  A  portion  of  the  barley  crop  is  pur- 
chased directly  from  the  farmers  through  elevators  operated 
by  malting  plants,  but  the  number  of  country  elevators  oper- 
ated by  flour  and  grist  mills  is  small.  A  few  country  ele- 
vators are  also  owned  and  managed  (5)  by  "bonanza  farm- 
ers" whose  acreage  and  crop  are  sufficiently  large  to  warrant 
the  investment  of  funds  in  elevator  properties.  The  railroads 
still  have  an  interest  in  some  elevators,  and  some  grain  is 
consigned  to  central  commissionmen  by  farmers  or  shippers 
who  load  the  grain  into  cars  without  the  medium  of  elevators 
or  warehouses. 

Line  Elevator  Companies. — The  so-called  ^line  elevator 
company"  is  a  concern  operating  large  numbers  or  lines  of 
country  elevators  along  one  or  more  railroad  routes  and  has 
its  headquarters  at  the  primary  market  to  which  it  ships  most 
of  the  grain  purchased  from  the  farmers.  Some  of  these  con- 
cerns which  were  first  organized  in  the  period  of  1889  to  1900 
operate  lines  of  elevators  extending  throughout  three  or  more 
states.  In  competing  with  local  grain  elevator  dealers  the  line 
elevators  have  the  advantage  in  that  they  extend  over  wide 


areas  and  consequently  obtain  a  larger  share  of  the  crop. 
Since  the  profits  of  country  elevators  depend  not  only  upon 
the  price  margin  but  also  upon  the  volume  of  grain  handled, 
the  line  elevator  concerns  have  at  times  been  able  to  make  a 
fair  aggregate  profit  even  though  the  profit  per  bushel  of 
grain  was  small.  They  have  an  advantage  also  in  that  the 
large  volume  of  grain  handled  enables  them  to  sell  their  grain 
at  the  primary  markets  through  agents  of  their  own.  By 
avoiding  the  central  commissionman  they  eliminate  one  of  the 
middlemen  of  the  grain  trade.  It  has,  moreover,  been  asserted 
that  in  the  past,  before  common  carriers  were  subjected  to 
stringent  federal  and  state  regulation,  the  line  elevator  con- 
cerns sometimes  had  the  advantage  of  special  railroad  charges 

and  services. 

The  local  agents  in  charge  of  line  elevators  receive  daily 
instruction  from  headquarters  by  mail  as  to  the  prices  to  be 
paid  for  all  grades  of  the  various  grains  purchased,  and  when 
wide  price  fluctuations  suddenly  occur  at  the  primary  market 
during  the  day  price  changes  are  telegraphed  to  them.  The 
prices  paid  the  farmers  depend  upon  the  prices  prevailing  at 
the  primary  grain  market,  the  farmers  receiving  the  primary 
market  prices  less  the  cost  of  freight  and  a  margin  or  allow- 
ance of  a  certain  number  of  cents  per  bushel.  As  was  for- 
merly explained  the  price  margins  usually  range  from  IJ  to 
2i  cents  for  the  coarser  grains  and  from  5  to  6  cents  for  flax- 
seed.^ Price  margins  for  wheat  vary  considerably  but  an  ef- 
fort is  made  to  maintain  them  at  about  three  cents  per 

bushel.^ 

The  grading  of  the  grain  at  the  country  elevators  is  largely 
a  matter  of  local  judgment,  because  grading  and  inspection  at 
the  local  markets  is  not  regulated  by  state  law  to  the  extent 
that  it  is  at  the  primary  grain  markets.  At  points  where  sev- 
eral buyers  are  stationed  the  resulting  competition  has  in  re- 

*" Wheat  and  Flour  Prices  from  Farmer  to  Consumer,"  Bureau 
of  Labor  Statistics,  Bulletin  No.  130,  pp.  18-26. 

"S.  Harris:  ''Methods  of  Marketing  the  Grain  Crop,''  Annals 
of  the  American  Academy  of  Political  and  Social  Science,  Sept.,  1911, 
p.  41. 


42 


AGKICTJLTUEAL  COMMERCE 


cent  years  usually  guaranteed  liberal  grading  to  the  farmer 
because  it  is  to  the  interests  of  the  various  elevator  concerns 
to  handle  as  large  a  volume  of  grain  as. possible.  At  non- 
competitive points  there  is  more  complaint  on  the  part  of 
farmers,  and  in  some  local  markets,  especially  in  regions 
where  the  quantity  of  grain  sold  is  relatively  small  and 
where  the  trade  is  not  well  organized,  grain  is  still  purchased 
from  the  farmers  without  the  establishment  of  definite  grades. 
The  buyer  in  the  latter  case  bears  in  mind  the  probable  grades 
which  the  grain  will  be  given  at  the  primary  market,  but  in 
bargaining  with  the  farmer  no  official  grades  are  established. 

Since  most  of  the  available  grain  is  purchased  from  the 
farmers  shortly  after  its  harvesting,  the  line  elevator  com- 
panies require  large  sums  of  cash  during  the  busy  season. 
Being  large  concerns  they  can,  of  course,  provide  a  portion  of 
the  needed  funds  directly  from  their  own  resources,  but  addi- 
tional cash  with  which  to  buy  grain  at  the  country  elevators  is 
realized  on  the  grain  which  is  shipped  to  the  primary  market 
from  day  to  day  and  sold  at  a  profit.  Grain  which  has  been 
sold  "to  arrive,''  i.  e.,  before  it  has  actually  arrived  at  the 
primary  market,  and  which  is  shipped  on  order  bills  of  lading, 
may  provide  the  local  elevator  agents  with  cash  at  the  time 
of  its  shipment,  for  banks  accept  such  bills  for  payment. 
Some  cash,  moreover,  is  borrowed  from  banks  with  grain  in 
storage  as  collateral.  As  will  be  more  fully  explained  in  other 
connections,  grain  "warehouse  receipts"  issued  at  the  central 
elevators  in  the  primary  markets,  when  accompanied  by  an 
insurance  certificate,  are  readily  accepted  by  many  banks  as 
collateral  for  loans.^ 

The  profits  of  the  line  elevator  companies  result  from  the 
sale  of  grain  in  the  primary  markets  at  a  higher  price  than 
the  price  paid  to  the  farmers.  They  sell  to  central  grain  job- 
bers or  dealers,  to  speculators  and  to  flour-  and  grist-mill 
operators,  exporters,  malt  concerns,  or  cereal  food  manufac- 
turers. They  may  sell  their  grain  immediately  after  its  pur- 
chase from  the  farmers,  or  they  may  hold  it  for  a  rise  in  price, 
and  they  may  contract  to  deliver  grain  at  the  primary  market 

^  Chaps,  iv,  XV,  xvi. 


COUNTRY  ELEVATOR  SYSTEM 


43 


even  before  they  have  purchased  it  from  the  growers.  Ordi- 
narily they  aim  to  sell  at  a  price  which  will  yield  them  a  rea- 
sonable trade  profit  on  each  bushel  handled,  rather  than  to 
hold  grain  in  storage  for  a  speculative  future  profit.  To 
safeguard  their  trade  profit  they  habitually  base  their  country 
prices  upon  the  prices  prevailing  at  the  primary  market,  de- 
ducting from  the  latter  the  freight  rates  and  a  price  margin 
sufficient  to  cover  expenses  and  yield  a  profit  on  the  invest- 
ment. Since  the  prices  at  the  primary  markets  fluctuate,  the 
line  elevator  companies  do  not,  however,  depend  wholly  upon 
the  small  price  margin  which  is  allowed.  Many  do  not  con- 
tract to  deliver  grain  which  they  do  not  possess  at  the  time 
of  sale,  or  keep  on  hand  grain  which  is  not  immediately  sold, 
without  protecting  their  trade  profits  by  "hedging"  in  the 
speculative  markets  of  the  large  grain  exchanges.  To  again 
quote  the  report  of  the  Bureau  of  Labor  Statistics : 

When  he  has  a  quantity  of  wheat  on  hand  he  hedges  in  the 
grain  market  by  selling  a  future;  that  is,  he  enters  into  a  con- 
tract of  sale  for  future  delivery.  Should  the  price  of  wheat 
advance  he  makes  a  profit  on  his  wheat  in  stock  and  loses  on 
his  future  when  he  closes  it  out.  On  the  other  hand,  should 
the  price  of  wheat  decline,  he  loses  on  his  wheat  in  stock  but 
makes  a  profit  on  his  future  by  buying  on  the  market  at  a  lower 
price  to  close  it  out.  Thus,  the  speculative  side  of  the  grain 
market  affords  the  dealer  in  actual  grain  an  opportunity  to  do 
a  comparatively  safe  and  conservative  business.  Without  the 
opportunity  to  deal  in  futures,  conservative  dealers  state  that 
they  would  not  buy  wheat  in  any  considerable  quantity  except 
on  a  much  wider  margin  and  at  a  consequent  lower  price. 


Since  ^Tiedging"  is  not  peculiar  to  the  local  grain  trade  it 
will  be  more  fully  discussed  on  a  later  page.^ 

Local  Grain  Dealers'  Elevators. — The  manner  of  conduct- 
ing the  business  of  country  elevators  operated  by  independent 
local  grain  dealers  is  substantially  the  same  as  that  described 
in  connection  with  line  elevator  concerns,  with  the  exception 
that  they  are  not  managed  from  headquarters  located  at  the 

^  See  chap.  vii. 


44 


AGRICTTLTITRAL  COMMERCE 


primary  market  and  ordinarily  sell  through  central  commis- 
sionmen  instead  of  through  their  own  agents.  The  local  grain 
dealers  preceded  the  line  elevator  companies.  Originally  they 
operated  independently  of  each  other,  and  some  of  them  still 
act  individually,  but  many  of  them  have  for  various  reasons 
ujiited  into  'local  grain  dealers'  associations."  The  associa- 
tions were  originally  formed  in  order  to  obtain  favorable 
treatment  from  railroad  carriers;  to  correct  abuses  in  local 
grading  and  to  induce  farmers  to  sell  their  grain  under  a  sys- 
tem of  grading;  to  correct  abuses  at  the  primary  markets  in 
the  matter  of  grading,  inspection,  weighing  and  "dockage"  for 
unclean  grain ;  and  to  induce  the  farmers  to  bring  their  grain 
to  market  in  a  better  and  cleaner  condition.  The  organization 
of  dealers'  associations  began  prior  to  the  rise  of  line  elevator 
companies,  but  the  desire  to  counteract  the  advantages  of 
these  companies  became  an  additional  motive.  By  1900  some 
of  the  associations  had  become  so  strong  that  there  were  com- 
plaints charging  arbitrary  coercion  of  individual  dealers, 
central  commissionmen,  railroads  and  farmers.  The  rise  of 
line  elevators  and  farmers'  cooperative  elevators  has,  however, 
deprived  the  local  dealers'  associations  of  much  of  their  for- 
mer influence. 

Parmers'  Cooperative  Elevators.— Many  of  the  present-day 
cooperative  farmers'  elevators  are  also  operated  substantially 
in  the  same  manner  as  line  or  local  dealers'  elevators.  In  the 
past  the  farmers  in  establishing  cooperative  elevators  fre- 
quently underestimated  the  expense  and  risks  of  the  grain 
trade;  they  seldom  hedged  their  transactions,  and  their  at- 
tempts to  market  grain  on  too  narrow  price  margins  some- 
times resulted  in  failure.  In  many  instances  they  were,  more- 
over, opposed  by  local  grain  dealers  and  line  elevator  com- 
panies, by  central  jobbers,  dealers  and  commissionmen,  and  by 
the  railroads,  who  regarded  them  as  "irregular."  Not  all  the 
farmers  have  learned  by  experience  since  1889  when  the  first 
cooperative  elevator  began  operation,^  and  consequently  fail- 
ures are  not  uncommon  at  the  present  time.  Usually,  how- 
ever,  the  cooperative  elevator  concerns  are  now  conservatively 

*G.  H.  Powell:    Cooperation  in  Agriculture,  p.  127. 


COUNTRY  ELEVATOR  SYSTEM 


45 


1 


t 


organized  as  regularly  incorporated  companies  or  joint-stock 
associations  with  a  capital  stock  varying  from  $2,500  to 
$20,000  and  with  from  70  to  225  stockholders.  They  usually 
buy  grain  in  the  same  way  that  private  dealers  do  and  dis- 
tribute their  profits  as  dividends,  although  when  competition 
is  keen  they  sometimes  pay  the  primary  market  price  less  the 
freight  rate,  and  assess  operation  costs  against  the  stockhold- 
ers in  proportion  to  the  quantity  of  grain  contributed.  They 
sometimes  operate  their  elevators  in  connection  with  flour, 
feed,  coal,  lumber,  fertilizer,  farm  machinery  or  other  local 
business  so  as  to  reduce  expenses  and  increase  their  profits. 

The  farmers'  elevators,  moreover,  frequently  have  the  ad- 
vantage of  handling  a  larger  volume  of  grain  at  a  given 
shipping  point  than  their  competitors,  for  price  considera- 
tions being  alike,  the  stockholders  desiring  large  dividends  sell 
to  their  own  company.  The  articles  of  incorporations  in  some 
cases  provide  that  members  may  sell  their  grain  to  outside 
firms  only  upon  payment  to  the  farmers'  company  of  one  cent 
on  every  bushel  so  sold,  and  many  farmers  who  are  not  stock- 
holders, realizing  the  effect  which  the  cooperative  elevator  has 
upon  country  prices  and  grading,  also  sell  to  the  farmers' 
company.  As  was  previously  mentioned  the  profits  of  a  coun- 
try elevator  are  affected  greatly  by  the  quantity  of  grain 
handled.  The  stockholders,  moreover,  being  primarily  inter- 
ested in  the  sale  of  the  grain  which  they  individually  grow 
are  less  dependent  upon  elevator  profits  than  their  competi- 
tors. Farmers'  elevators  are  especially  apt  to  be  established 
at  points  where  there  is  but  one  grain  buyer,  and  at  points 
where,  although  there  are  several  buyers,  the  farmers  are  not 
convinced  that  they  receive  fair  prices. 

Although  the  number  of  line  and  grain  dealers'  elevators 
exceeds  that  of  cooperative  elevators,  the  latter  have  in  some 
regions  made  rapid  progress.  It  is  stated  that  in  1913  there 
were  340  cooperative  elevators  in  Iowa,  331  in  North  Dakota, 
297  in  Minnesota,  260  in  Illinois,  225  in  South  Dakota,  204 
in  Nebraska  and  137  in  Kansas.  There  were  relatively  few  in 
Missouri,  Oklahoma  and  Texas,  in  the  grain  regions  east  of  , 
the  Mississippi  or  in  the  Rocky  Mountain  and  Pacific  Coast 


46 


AGRICULTUEAL  COMMERCE 


COUNTRY  ELEVATOR  SYSTEM 


47 


states.  It  is  estimated  that  in  1913  there  were  over  two  thou^ 
sand  cooperative  elevators  operating  in  the  United  States  as 
a  whole,  not  including  the  cooperative  grain  warehouses  which 
have  been  established  on  the  Pacific  Slope.  In  1911  they  han- 
dled not  less  than  270,000,000  bushels  or  about  40  per  cent,  of 
the  grain  shipped  from  those  regions  in  which  cooperative 
elevators  have  been  constructed. ^ 

The  principal  obstacles  encountered  by  farmers'  elevators 
have  been  mismanagement  and  competition  with  line  elevator 
companies.  The  handling  of  larger  quantities  of  grain  by  the 
latter,  and  their  ability  to  recoup  at  one  point  the  profits 
which  they  sacrifice  at  another,  gives  them  an  advantage 
alike  over  cooperative  and  grain  dealers'  companies  which 
ordinarily  operate  individual  elevators.  In  order  to  over- 
come this  disadvantage  the  farmers'  companies  have  been 
urged  to  form  cooperative  unions. 


The  Local  Grain  Market  in  the  Pacific  Coast  Region 

The  sale  of  grain  by  the  farmers  of  the  Pacific  Coast 
region  differs  from  the  methods  prevailing  throughout  the 
central  western  and  eastern  parts  of  the  United  States  in  vari- 
ous respects. 

Local  Purchasing  by  Exporters. — ^While  the  grain  export 
trade  conducted  through  the  Atlantic  and  Gulf  ports  is  han- 
dled by  exporters  who  purchase  their  grain  at  the  large  pri- 
mary and  seaboard  markets.  Pacific  Coast  exporters  frequently 
buy  grain  directly  from  the  farmers.     Their  agents,  who  are 

*H.  J.  Waters,  President  Kansas  State  Agricultural  College: 
Annual  Eeport  of  State  Board  of  Agriculture  of  Missouri,  1913,  p. 
118: 


Iowa  , 
N.  D. 
Mo.  .. 
IlL  ... 
S.  D.  . 
Neb.  . 


340 
331 
297 
260 
225 
204 


Kan.  . . . 

..   137 

Wis.    ... 

..     53 

Okla.  ... 

..     34 

Ind 

..     28 

Mont.  . . 

..     27 

Ohio   ... 

..     26 

Mich 

23 

Wash 

18 

Mo 

8 

Tex 

5 

Colo 

5 

Idaho  .... 

4 

Ore.  , 

Ark. 

Kan. 


3 
2 
1 


Total.  ..2,031 


'G.  H.  Powell:     Cooperation  in  Agriculture,  pp.  122-123. 


fj 


scattered  throughout  the  local  markets,  purchase  wheat  and 
barley  and  forward  it  to  the  ports.  The  exporting  concerns 
then  attend  to  the  chartering  of  vessels,  the  loading  of  the 
cargo,  the  securing  of  marine  insurance,  the  payment  of  the 
ocean  freight,  and  the  sale  of  the  grain  to  the  foreign  im- 
porter. It  was  stated  by  the  Bureau  of  Statistics,  Department 
of  Agriculture,  that  a  large  part  of  the  grain  export  trade 
of  the  Pacific  Coast  is  concentrated  in  the  hands  of  a  few 
strong  firms. 

These  exporters  are  more  or  less  closely  connected  with  grain 
dealers  located  in  European  markets,  and  who  represent  there 
the  men  who  export  from  the  United  States;  this  relation  is 
in  some  cases  reversed — some  Pacific  Coast  exporters  are  repre- 
sentatives of  European  firms.  The  European  representative  of 
the  Pacific  Coast  exporter  may  sell  a  given  lot  of  wheat  before 
the  exporter  buys  it  for  shipment  or  the  exporter  may  buy  it 
first  and  look  for  a  purchaser  afterwards.  In  either  case  both 
transactions  are  usually  made  within  a  short  time  of  each 
other,  and  the  exporter  runs  less  risk  of  a  fall  in  price  than 
if  he  held  his  wheat  a  longer  time  before  selling  it.* 

The  purchases  made  by  the  exporter  are  of  particular  im- 
portance to  the  Pacific  Coast  wheat  and  barley  grower,  be- 
cause the  grain  trade  of  the  Pacific  Slope  is  more  largely  de- 
pendent upon  the  foreign  market  than  that  of  the  grain 
regions  located  east  of  the  Eocky  Mountains. 

Handling  of  Grain,  in  Sacks. — Pacific  Coast  grain  is 
mainly  handled  in  sacks  rather  than  in  bulk.  This  practice, 
which  in  the  past  also  prevailed  in  other  regions  of  the  United 
States,  but  which  owing  to  its  expensive  and  cumbersome  na- 
ture has  been  largely  abandoned,  still  persists  in  the  Far 
West.  Its  retention  is  partly  due  to  custom,  but  it  is  also  due 
partly  to  the  fear  that  it  is  not  safe  to  load  a  vessel  with 
bulk  grain  for  the  long  voyage  to  European  markets.  One 
of  the  conditions  of  Pacific  Coast  marine  insurance  policies 
and  grain-charter  parties  ordinarily  is  that  grain  cargoes  shall 
be  shipped  in  sacks.    Since  the  export  trade  is  so  important 

*F.  Andrews:  *' Marketing  Grain  and  Livestock  in  the  Pacific 
Coast  Region,''  Bureau  of  Statistics,  Bulletin  No.  89  (1911),  p.  85. 


48 


AGRICULTUKAL  COMMERCE 


in  the  Pacific  Coast  grain  trade,  these  conditions  influence 
the  methods  of  handling  most  of  the  grain  of  the  Far  West- 
domestic  as  well  as  export.  The  grain  is  sometimes  sacked 
several  times,  for  when  received  at  the  port  warehouses  it 
"is  frequently  emptied  from  the  sacks,  run  through  an  ele- 
vator for  the  purpose  of  cleaning  or  mixing,  and  is  sacked 
again  for  shipment.'*  ^ 

Kelative  Absence  af  Country  Elevators.— There  are  rela- 
tively few  country  elevators  on  the  Pacific  Slope,  the  grain  in 
sacks  being  stored  in  warehouses  and  on  open  platforms.  The 
sacks  being  easily  handled  by  hand  trucks,  the  warehouses 
require  relatively  little  machinery.  Some  of  them,  especially 
the  large  warehouses  at  the  ports,  are,  however,  equipped  with 
steam  or  electrically  driven  conveyors  for  stacking  and  load- 
ing the  sacks  of  grain.  Grain  elevators  have  been  erected  at 
various  places  in  the  Pacific  Coast  region,  for  some  of  the 
grain  is  handled  in  bulk,  and  it  has  also  been  recognized  that 
elevators  facilitate  the  cleaning  and  mixing  of  grain. 

Cooperative  Growers'  Associations. — Some  of  the  grain  of 
the  Pacific  Slope  is  sold  through  cooperative  farmers'  associa- 
tions. The  cooperative  grain  ventures  which  have  been  at- 
tempted in  California  since  1874  have  in  some  instances  met 
with  failure,  but  at  present  there  is  an  organization  in  that 
state  known  as  the  Grain  Growers'  Association  of  California 
which  claims  to  have  caused  higher  prices  to  be  paid  to  the 
growers.  In  Oregon,  Washington,  and  Idaho  there  are  nu- 
merous cooperative  grain  warehouses,  which  differ  from  the 
cooperative  elevators  of  the  grain  regions  east  of  the  Rocky 
Mountains  in  that,  while  they  are  operated  by  separate  local 
organizations,  their  sales  are  made  through  a  central  union 
whose  agents  sell  to  exporters,  to  mills  and  to  dealers  who  sup- 
ply mills  with  grain. 

Price-quoting  System. — A  minor  feature  of  the  Pacific 
Coast  grain  trade  is  that  wheat  and  barley  prices  at  many 
points  are  locally  quoted  in  terms  of  100  pounds.  In  Oregon, 
Washington  and  Idaho,  wheat  prices  are  quoted  in  terms  of 
bushels  of  60  pounds  as  in  other  wheat-growing  regions  of 

»Il>id.,  p.  90. 


COUNTRY  ELEVATOR  SYSTEM 


49 


the  United  States,  but  barley  is  often  sold  by  the  "cental'^ 
(100  lbs.)  or  by  the  short  ton  (2,000  lbs.).  Pacific  Coast 
wheat  when  exported  to  England  is  usually  sold  in  terms  of 
^'quarters"  of  500  pounds,  and  barley  in  terms  of  quarters  of 
448  pounds  gross  weight.^ 


BIBLIOGRAPHY 

(See  references  on  pages  92,  93  designated  by  an  *.) 
^Ibid,,  p.  86. 


\ 


CHAPTEK  IV 

PBIMAEY   AND   SEABOARD    GRAIN   MARKETS: 
TERMINAL   ELEVATOR  SYSTEM 


THE 


As  the  grain  trade  illustrates  the  manner  in  which  a  farm 
product  grown  hy  a  large  number  of  farmers  throughout  wide 
areas  is  first  collected  and  sold  at  local  markets,  so  it  is  also 
an  excellent  example  of  how  such  commodities  are  in  many- 
instances  concentrated  at  a  smaller  number  of  large  central 
markets  before  they  are  shipped  to  their  final  destination. 

The  Flow  of  the  Grain  Trade 

The  System  of  Grain  Markets. — ^Most  of  the  grain  after, 
it  leaves  the  farms  passes  through  a  series  of  markets  and  ship- 
ping points.     (1)  The  local  markets  which  were  described  in 
the  preceding  chapter  collect  the  grain  from  the  growers;  (2) 
the  primary  markets  of  the  interior  collect  most  of  it  from 
the  local  markets;  (3)  portions  of  the  grain  shipped  out  of 
the  primary  markets  are  sold,  transshipped,  or  consumed  at 
the  seaboard  markets,  which  are  located  at  the  country's  prin- 
cipal ports  of  distribution  and  exportation,  (4)  at  secondary 
wholesale  markets  throughout  the  United  States  and  (5)  at 
central  markets  in  foreign  countries.     (6)   Much  grain  in 
moving  out  of  the  primary  markets  is,  moreover,  transshipped 
en  route  at  a  group  of  interior  points  where  grain  is  trans- 
ferred rather  than  marketed.    (7)  Certain  quantities  of  grain 
are  retailed  for  feed  or  seed  purposes  at  retail  markets  located 
throughout  the  United  States  or  in  foreign  grain-importing 
countries.     Much  grain,  however,  is  not  retailed,  but  is  sold 
in  wholesale  lots  to  flour  and  grist  mills,  malt  houses,  cereal 
manufacturers  and  other  large  consumers. 


PKIMARY  AND  SEABOARD  GRAIN  MARKETS    51 

The  organized  grain  trade,  in  so  far  as  it  is  conducted 
in  the  central  markets  of  the  United  States,  is  principally 
confined  to  the  primary  markets  of  the  interior  and  the 
seaboard  grain  markets  of  the  Atlantic,  Gulf  and  Pacific 
coasts. 

Geographical  Location  of  Primary  Markets. —  As  shown 
in  Map  No.  Ill,  a  circle  with  its  center  at  Peoria,  Illinois, 
and  its  circumference  drawn  through  Duluth  and  Wichita 
circumscribes  all  the  principal  primary  grain  markets  of  the 
United  States.  While  their  central  western  location  places 
them  adjacent  to  some  of  the  country's  greatest  grain  fields, 
there  are  vast  grain-growing  regions  in  the  trans-Mississippi 
Valley,  which  are  removed  many  hundreds  of  miles  from  the 
nearest  primary  market.  They  are  located  with  special  ref- 
erence to  transportation  facilities,  for  they  gather  their 
grain  supply  from  the  thousands  of  local  country  mar- 
kets. Most  of-  them  are  situated  either  on  the  western 
heads  of  the  Great  Lakes  or  on  the  interior  waterways, 
and  all  of  them  have  been  supplied  with  abundant  railroad 
facilities. 

From  each  of  the  primary  markets  numerous  railroads 
radiate  throughout  the  agricultural  districts  from  which  they 
obtain  grain.  Sometimes  as  many  as  twenty-five  or  more 
railroads,  including  many  of  the  well-known  Granger  roads 
of  the  Central  West,  feed  a  single  large  market,  and  smaller 
quantities  of  grain  are  also  received  at  some  of  these  mar- 
kets via  lake  or  river.  Each  primary  market  is  likewise 
located  so  that  it  may  readily  ship  grain  eastward  or  south- 
ward. The  eastern  and  western  trunk  lines,  the  Great  Lakes, 
and  to  a  less  extent  the  Erie  Canal,  regularly  carry  large  vol- 
umes of  grain  from  the  primary  markets  of  the  West  to  the 
inland  and  seaboard  markets  of  the  Atlantic  Coast,  and 
another  group  of  railroads  and  certain  rivers  carry  smaller 
quantities  to  the  inland  and  seaboard  markets  of  the  Gulf  of 
Mexico.  The  manner  in  which  Chicago,  the  largest  primary 
market,  receives  and  ships  its  supply  of  grain  is  clearly 
shown  in  the  following  balance  sheet  for  the  year  1913 
(Table  III)  : 


52 


AGKICULTURAL  COMMERCE 


TABLE 
BALANCE  SHEET  OF 


Receipts 

Wheat, 
Bushels 

Com, 
Bushels 

Oats, 
Bushels 

Rye, 
Bushels 

Barley, 
Bushels 

Lake 

4,439,000 

2,042,000 

17,000 

24,539,000 

14,579.000 

23,298,000 

15,229,000 

3,916,000 

4,944,000 

16,727.000 

3,940,000 

6.822.000 

2,746,000 

796,000 

1,097,000 

3,713,000 

Illinois  <k  Alicliieaii  Canal. 

55,000 

25,2r6,000 

21,090,000 

16,595,000 

17,652.000 

5,702,000 

6,193,000 

16,031,000 

4,120,000 

4.395,000 

4,212,000 

45,000 

1,365,000 

5,082,000 

Chicago  &  N.  W.  Ry 

Illinois  Central  R.  R 

Chic,  Rock  I.  &  Pac.  Ry. 
Chic,  Burl.  &Q'cyR.R.. 
Chicago  &  Alton  R.  R .  . . 
Chic.  ifeEast'nIlI.  R.  R... 
Chic,  Mil.  &  St.  Paul  Ry.. 
Wabash  R.  R 

6,869,000 
3,007,000 
4,297,000 
12,141,000 
1,985,000 

470,000 
7,945,000 
3,067,000 
3,359,000 

952,000 

854,000 
8,000 

979,000 

754,000 

17,000 

170,000 

336,000 

97,000 

5,000 

1,187,000 

5,000 

273.000 

14.000 

113.000 

7,000 

97,000 

10.531,000 

1,118,000 

2,945,000 

1,792,000 

340,000 

5,000 

9.414,000 

35,000 

Chic.  Great  Western  R.  R. 
Atch.,  Top.  &  S'ta  Fe  Ry. . 
Soo  Line 

2.950,000 

43.000 

2.408,000 

Elgin,  Joliet  &  East'n  Ry.. 
*East'n  &  S.  E.  lines 

6,000 
76,000 

Total  receiots 

50,372,000 

127,773,000 

124,405,000 

3,075,000 

31.663,000 

Flour  manufactured  in  the 
citv  restimated^ 

In  store  and  afloat  in  har- 
bor, December  31,  1912 

8.152.000 

1,652,000 

1,963,000 

128.000 

173,000 

Grand  totals 

58,524,000 

129,425,000 

126.368.000 

3,203,000 

31.836.000 

PRIMAEY  AND  SEABOARD  GRAIN  MARE:ETS    53 


NO.  Ill 
CHICAGO  GRAIN  TRADE,  1913 


Shipments 

Wheat, 
Bushels 

Corn, 
Bushels 

Oats, 
Bushels 

Rye, 
Bushels 

Barley,     i 
Bushels 

Lake — ^To  Buffalo 

13,073,000 
110.000 
240,000 

17,731.000 

75.000 

3,823.000 

2,048,000 



To  Erie 

To  Ogdensburg . . . 

381,000 

To  Fairport 

To  Port  Huron .  . , 

781.000 

158.000 

1,537.000 

45.000 

1.520.000 

2,351,000 

3,432,000 

184.000 

695,000 

^.000,000 

To  other  U.  S.  ports 

484.000 

32.000 

1.609,000 

58,000 

266,000 

To  Depot  Harbor. 

2,315,000 

To  Montreal 

To  Midland 

332,000 
189,000 

To  Tiffin 

To  Collingwood . . . 

To  Kingston 

To  Prescott 

ToPt.  Colboum.. 

656,000 

To  other  Canadian 
porta 

55.000 

Totals  by  lake 

16,528,000 

51,000 

378,000 

612,000 

32.387.000 

203.000 

121.000 

1,239,000 

6,265,000 

74,000 

321,000 

926,000 

Chic.  &  Northwestern  Ry. 

Illinois  Central  R.  R 

Chic  Rock.  lal.  &  Pac  Ry. 
Chic,  Burl.  &Q'cyR.R.. 

4,000 

29,000 

8,000 

49,000 
30,000 
66,000 

Chicago  &  Alton  R.  R .  . . 

23,000 

101,000 

50,000 

14,000 

49,000 

256,000 

308,000 

1,000 

10.000 

874,000 

16,000 

2.000 
42.000 
36.000 

Chic  &  East'n  111.  R.  R. . 
Chic,  Mil.  &  St.  Paul  Ry. 
Wabash  R.  R.  (W.  of  Chi). 

22,000 
1,000 
1,000 

Chi.  Great  Western  R.  R . 

Atch.,  Top.  &  S'ta  Fe  Ry. . 

1,000 

1,000 

58,024,000 

2.000 

19,000 

89,870,000 

800  Line 

2,000 
28,240,000 

■ "  1,612,666 

♦East'n  and  S.  E.  lines .... 

48,000 
7,515.000 

Total  shipments 

In  store  and  afloat  in  har- 
bor, December  31,  1913 

City  consumption  and  un- 
accounted for 

45,999,000 
7,277,000 
5,248,000 

92,590,000 

4,039,000 

32,796,000 

98,377,000 
11,674,000 
16,317,000 

1,677.000 

415,000 

1,111,000 

7.788,000 

318,000 

23,730.000 

Grand  totals 

58,524,000 

129,425,000 

126,368,000 

3,203,000 

31.836.000 

*  The  extern  and  southeastern  lines  include  the  Wabash  R.  R.  (east  of  Chicago). 
P.  Ft.,  W.  &  C.  Ry.,  P.  C.  C.  &  St.  L.  Ry..  B.  &  O.  R.  R.,  G.  T.  W.  Ry.,  N.  Y.  C.  & 


St  L^T  r*^  S-  ^'S-  ?.  9-  i  I*  ,f  •  Ry.  Michigan  Central  R.  R..  L.  S.  &  M.  S.  Ry.. 
m.  1j.  ity.,  u.  &  iu.  R.  tt.,  C.  I.  &  S.  Ry.,  aad  the  C.  I.  d  L.  Ry, 


^ 


I 


54 


AGKICULTURAL  COMMERCE 


The  Volnme  of  Business  at  the  Primary  Markets. — The 
relative  importance  of  the  primary  grain  markets  varies 
widely.  The  receipts  of  wheat  are  greatest  at  Minneapolis, 
Duluth,  Chicago,  Kansas  City,  St.  Louis  and  Omaha ;  those  of 
corn  at  Chicago,  Omaha,  St.  Louis,  Kansas  City  and  Peoria; 
those  of  oats  at  Chicago,  St.  Louis,  Minneapolis,  Omaha  and 
Milwaukee;  barley  at  Minneapolis,  Chicago,  Milwaukee  and 
Duluth ;  and  rye  at  Minneapolis,  Milwaukee^  Chicago  and  Du- 
luth. The  aggregate  grain  receipts  of  the  sixteen  principal 
primary  markets  in  the  years  1905,  1910  and  1913  are  shown 
in  Table  IV-  The  combined  receipts  of  these  markets  in  1913 
reached  the  amazing  total  of  1,063,602,902  bushels. 

TABLE  IV 

Receipts  and  SmPMENTS  of  Grain  at  Sixteen  Leading  Primary 

Grain  Markets.* 


Markets 


Receipts  (in  bu.) 


1905t 


Chicago... . . 
Minneapolis. 
Kansas  City. 

St.  Louis 

Duluth 

Milwaukee . . 

Omaha 

Peoria 

Louisville.  . . 
Cincinnati . . . 
Indianapolis. 

Toledo 

Cleveland. . . 

Detroit 

Wichita 

Little  Rock. 


1910t 


260,675,803 

138,370,220 

68,298,200 

60,781,698 

51,317,351 

37,749,100 

34,523,500 

29,093,000 

22,602,700 

30,103,717 

9,240,500 

24,400,700 

21,981,047 

14,975,282 

5,000,00011 

4,409,200 


Total. 


258,830,450 

152,824,990 

67,072,000 

66,159,123 

49,883,152 

47,230,563 

43,354,100 

33,583,216 

21,317,857 

20,288,300 

16,155,500 

13,076,700 

12,118,004 

8,802,499 

8,762,100 

3,471,000 


1913 1 


Shipments 
1910t 


813,642,018 


337,288,000 

185,250,340 

66,795,950 

80,498,694 

112,560,717 

59,464,630 

68,574,700 

34,574,700 

22,542,783§ 

21,153,312 

23,975,300 

14,733,800 

13,290,463 

7,529,900 

9,957,220§ 

5,513,000§ 


822,929,554 


182,928,500 
59,782,440 
49,489,800 
45,353,450 
45,315,285 
29,500,846 
33,391,500 
28,309,096 
11,423,652 
14,290,165 
10,490,125 
7,073,900 
2,685,406 
2,407,668 
1,589,200 
948,000 


1,063,602,902 


524,979,033 


*  Includes  wheat,  com.  oats,  barley  and  rye    Calendar  Years         „„  ,  .Q-f> 
+  TT  S  Monthlv  Summary  of  Commerce  and  Finance,  Dec,  iyU5  ana  lyi". 
I  N*.  Y.  PrXce  ExXnge.  Annual  Statistical  Report  (1913;)  Chicago  Board  d 
Trade.  Annual  Report  (1913),  etc. 
§  Fiscal  year  1912. 
Q  Approximate. 


i 


# » 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    55 

,  During  the  decade  ending  in  1913  the  annual  receipts  of 
grain  at  Chicago  increased  40  per  cent.,  at  Minneapolis  47.8 
per  cent.,  and  at  Kansas  City  and  Milwaukee  52  per  cent. 
The  grain  receipts  at  Duluth  underwent  the  even  more  rapid 
increase  of  172  per  cent.,  those  at  Omaha  128  per  cent.,  and 
those  at  Indianapolis  174  per  cent.  On  the  contrary  the 
quantity  of  grain  annually  received  at  St.  Louis,  although  it 
was  in  1913  exceeded  only  by  the  receipts  at  Chicago,  Min- 
neapolis and  Duluth,  increased  but  17  per  cent,  during  the 
decade.  The  increases  at  Louisville,  Cincinnati,  Wichita  and 
Little  Eock  were  likewise  small,  and  the  annual  receipts  at 
Peoria,  Toledo,  Cleveland  and  Detroit  declined  somewhat. 

Competition  Between  Primary  Markets.— Each     primary 
market  ordinarily  obtains  its  supply  of  grain  from  a  particu- 
lar grain-growing  section  or  sections.    There  is,  however,  ac- 
tive competition  between  the  various  markets  because  there  is 
no  large  district  which  does  not  have  the  alternative  of  ship- 
ping its  grain  to  several  markets,  and  because  the  grain  which 
is  ordinarily  shipped  to  a  particular  center  may  in  case  of 
manipulation  of  prices  or  extraordinary  demand  move  to  some 
other  primary  market.     The  relation  between  different  pro- 
ductive areas  and  primary  grain  markets  is  shown  in  Map 
No.  V.     The  grain  from  location  No.  1  usually  moves  to 
Minneapolis  and  Duluth,  but  the  railroad  carriers  are  so  situ- 
ated that  in  case  prices  for  any  reason  get  out  of  range  the 
grain  will  move  to  Chicago.     Grain  produced  in  section  No. 
2  is  ordinarily  shipped  either  to  Chicago  or  Milwaukee,  but 
slight  price  variations  at  times  draw  the  output  of  the  western 
portion  to  Minneapolis  or  Duluth.    Region  No.  3  is  tributary 
to  Milwaukee  and  to  various  smaller  markets  such  as  Ashland, 
Manitowoc  or  Green  Bay.     The  grain  produced  in  district 
No.  4  may  move  either  to  Kansas  City,  St.  Louis,  Omaha  or 
Chicago.    Territory  No.  5  may  ship  either  to  Chicago  or  St. 
Louis,  and  the  grain  from  territory  No.  6  usually  moves  to 
St.  Louis,  but  may  move  to  Chicago  in  case  prices  are  badly 
out  of  line.     Eegion  No.  2  A  ordinarily  ships  its  grain  to 
Chicago  or  Milwaukee,  but  may  also  ship  to  other  primary 
markets  north  or  south,  and  the  grain  produced  in  the  area 


J»»« 


56 


AGKICULTURAL  COMMERCE 


! 


i 


designated  4  or  5  ordinarily  moves  to  Kansas  City,  St.  Louis, 
or  Chicago,  but  may,  likewise,  go  to  other  primary  markets. 
The  grain  produced  in  district  No.  7  usually  moves  either  to 
Detroit  or  Toledo. 

The  competition  between  the  primary  markets  is  of  spe- 
cial importance  to  the  growers  and  local  shippers  of  grain, 
for  it  affects  the  prices  which  they  receive.    In  practice  the 
prices  at  the  various  primary  markets  do  not  remain  out  of 
parity  for  a  long  period  of  time  because  certain  dealers  or 
"arbitrageurs"  buy  or  sell  at  any  of  the  grain  exchanges  with 
a  view  to  making  a  profit  out  of  such  price  differences  as  occa- 
sionally occur,  but  their  ability  to  conduct  such  transactions 
on  a  large  scale,  even  though  no  actual  shipment  of  grain  may 
be  made,  depends  upon  the  ability  of  numerous  producing 
regions  to  ship  grain  to  any  one  of  several  primary  markets. 
Functions  of  Primary  Markets. — By  concentrating  a  large 
part  of  the  country's  available  grain  supply,  the  primary  mar- 
kets of  the  interior  make  possible  an  organized  grain  market. 
They  are  equipped  with  large  terminal  elevators  where  grain 
may  be  stored,  cleaned,  mixed  and  otherwise  handled,  where  it 
may  be  properly  inspected,  graded  and  weighed,  and  from 
which  it  may  readily  be  shipped  to  all  parts  of  the  world. 
They  are  equipped  with  organized  exchanges  where  grain  may 
at  all  times  be  bought  and  sold  in  accordance  with  established 
rules,  and  where  speculation  may  be  conducted  in  an  orderly 
manner.     By  concentrating  large  quantities  of  grain  and  by 
providing  a  continuous  market,  they  facilitate  the  maintenance 
of  a  world's  price  for  grain.     The  primary  markets,  more- 
over, that  are  important  milling  or  malting  centers,  provide 
a  final  market  for  some  of  the  grain  which  is  concentrated 
in  them. 

Shipping  Routes. — The  quantities  of  grain  shipped  out  of 
the  principal  primary  markets  in  1910  is  shown  in  Table  IV. 
The  primary  markets  as  a  whole  have  in  recent  years  shipped 
from  60  to  65  per  cent,  of  their  receipts,  the  remainder  being 
locally  consumed.  The  proportion  of  the  receipts  shipped  out 
of  Chicago,  Duluth,  St.  Louis,  Kansas  City,  Omaha  and  Pe- 
oria is,  however,  greater  than  the  average  for  all  the  primary 


Map  V. — Tekritobial  Competition  among  Primary  Grain  Markets. 


•»«« 


rT*fr*lt\f  »nta  BafartMnt. 


EXPLANATION   OF  NUMBERS   ON   MAP. 

1.  Tributary,  as  a  general  rule,  to  Minneapolis  and  Duluth.  At  ex- 
traordinary times  wheat  from  this  territory  moves  to  Chicago. 

2.  Wheat  from  this  location  moves  to  either  Chicago  or  Milwaukee. 
At  times,  however,  western  portion  will  go  to  Minneapolis  or  Duluth.  A 
portion  of  the  territory  is  extremely  close  and  a  slight  variation  will  take 
it  away  from  one  market  to  another. 

3.  Wheat  from  this  location  is  naturally  tributary  to  Milwaukee,  Ash- 
land, Manitowoc,  or  Green  Bay. 

4.  Wheat  from  this  location  is  tributary  to  Kansas  City,  St.  Louis,  or 
Chicago.  A  slight  variation  in  prices  will  take  it  away  from  one  market  to 
another. 

5.  Territory  is  tributary  to  either  Chicago  or  St.  Louis.  Any  slight 
variations  in  the  market  will  pull  from  one  to  another. 

6.  This  territory  tributary  to  St.  Louis,  unless  Chicago  market  is  out 
of  line. 

7.  Wheat  from  this  territory  as  a  general  rule  goes  to  Detroit  or  Toledo. 
2A.     Wheat  from  this  section  moves  primarily  to  Chicago  or  Milwaukee, 

but  is  also  quite  liable  to  go  to  other  markets  north  or  south. 

4  or  5.  Wheat  from  this  section  moves  primarily  to  Kansas  City,  St. 
Louis,  or  Chicago,  but  may  go  to  other  markets. 


57 


INTENTIONAL  SECOND  EXPOSURE 


56 


AGRICULTURAL  COMMERCE 


designated  4  or  5  ordinarily  moves  to  Kansas  City,  St.  Louis, 
or  Chicago,  but  may,  likewise,  go  to  other  primary  markets. 
The  grain  produced  in  district  No.  7  usually  moves  either  to 
Detroit  or  Toledo. 

The  competition  between  the  primary  markets  is  of  spe- 
cial importance  to  the  growers  and  local  shippers  of  grain, 
for  it  affects  the  prices  which  they  receive.  In  practice  the 
prices  at  the  various  primary  markets  do  not  remain  out  of 
parity  for  a  long  period  of  time  because  certain  dealers  or 
"arbitrageurs"  buy  or  sell  at  any  of  the  grain  exchanges  with 
a  view  to  making  a  profit  out  of  such  price  differences  as  occa- 
sionally occur,  but  their  ability  to  conduct  such  transactions 
on  a  large  scale,  even  though  no  actual  shipment  of  grain  may 
be  made,  depends  upon  the  ability  of  numerous  producing 
regions  to  ship  grain  to  any  one  of  several  primary  markets. 

Functions  of  Primary  Markets. — By  concentrating  a  large 
part  of  the  country's  available  grain  supply,  the  primary  mar- 
kets of  the  interior  make  possible  an  organized  grain  market. 
They  are  equipped  with  large  terminal  elevators  where  grain 
may  be  stored,  cleaned,  mixed  and  otherwise  handled,  where  it 
may  be  properly  inspected,  graded  and  weighed,  and  from 
which  it  may  readily  be  shipped  to  all  parts  of  the  world. 
They  are  equipped  with  organized  exchanges  where  grain  may 
at  all  times  be  bought  and  sold  in  accordance  with  established 
rules,  and  where  speculation  may  be  conducted  in  an  orderly 
manner.  By  concentrating  large  quantities  of  grain  and  by 
providing  a  continuous  market,  they  facilitate  the  maintenance 
of  a  world's  price  for  grain.  The  primary  markets,  more- 
over, that  are  important  milling  or  malting  centers,  provide 
a  final  market  for  some  of  the  grain  which  is  concentrated 
in  them. 

Shipping  Routes. — The  quantities  of  grain  shipped  out  of 
the  principal  primary  markets  in  1910  is  shown  in  Table  IV. 
The  primary  markets  as  a  whole  have  in  recent  years  shipped 
from  60  to  Go  per  cent,  of  their  receipts,  the  remainder  being 
locally  consumed.  The  proportion  of  the  receipts  shipped  out 
of  Chicago,  Duluth,  St.  Louis,  Kansas  City,  Omaha  and  Pe- 
oria is,  however,  greater  than  the  average  for  all  the  primary 


Map  V. — Territorial  Competition  among  Primary  Grain  Markets. 


I  wi^raj.. 


k««i^i;— 


fr«»»r«irV»  Or«tii  Bttrfnt,  Arsaur  * 


Co.    (1914). 


EXPLANATION   OF   NUMBERS   ON   MAP. 

1.  Tributary,  as  a  general  rule,  to  Minneapolis  and  Duluth.  At  ex- 
traordinary times  wheat  from  this  territory  moves  to  Chicago. 

2.  Wheat  from  this  location  moves  to  either  Chicago  or  Milwaukee. 
At  times,  however,  western  portion  will  go  to  Minneapolis  or  Duluth.  A 
portion  of  the  territory  is  extremely  close  and  a  slight  variation  will  take 
it  away  from  one  market  to  another. 

3.  Wheat  from  this  location  is  naturally  tributary  to  Milwaukee,  Ash- 
land, Manitowoc,  or  Green  Bay. 

4.  Wheat  from  this  location  is  tributary  to  Kansas  City,  St.  Louis,  or 
Chicago.  A  slight  variation  in  prices  will  take  it  away  from  one  market  to 
another. 

5.  Territory  is  tributary  to  either  Chicago  or  St.  Louis.  Any  slight 
variations  in  the  market  will  pull  from  one  to  another. 

6.  This  territory  tributary  to  St.  Louis,  unless  Chicago  market  is  out 
of  line. 

7.  Wheat  from  this  territory  as  a  general  rule  goes  to  Detroit  or  Toledo. 
2A.     Wheat  from  this  section  moves  primarily  to  Chicago  or  Milwaukee, 

but  is  also  quite  liable  to  go  to  other  markets  north  or  south. 

4  or  5.  Wheat  from  this  section  moves  primarily  to  Kansas  City,  St. 
Louis,  or  Chicago,  but  may  go  to  other  markets. 


67 


I 


58  AGKICTTLTURAL  COMMERCE 

markets,  while  in  the  case  of  Minneapolis,  Louisville,  Cincin- 
nati, Toledo,  Cleveland,  Detroit,  Wichita  and  Little  Rock  it 

is  IGSS 

The  shipments  may  reach  the  seaboard  and  interior  mar- 
kets of  the  East  over  various  routes:     (1)  The  grain  may 
move  over  the  all-rail  route,  for  all  the  eastern  trunk  hues 
conduct  a  grain-carrying  business.     (3)  It  may  niove  east- 
ward over  the  lake-rail  route.    Much  gram  is  regularly  trans- 
shipped from  railway  cars  and  elevators  to  lake  earners  at  Chi- 
cago Milwaukee,  Duluth  and  various  smaller  transshipment 
points  on  Lakes  Superior  and  Michigan,  and  after  arriving 
at  Buffalo  or  other  minor  grain-receiving  ports  such  as  i^rie, 
Ogdensburg  or  Fairport,  is  again  transshipped  from  the  lake 
to  the  rail  carriers.     (3)  It  may  move  to  the  Bast  over  the 
lake-canal  route,  the  grain  being  t'-ansshipped  to  E„e  Canal 
boats  or  barges  at  Buffalo.     (4)  At  certam  Lake  Michigan 
points  grain  is  transported  across  the  lake  by  so-called    transit 
lines  "^    Two  classes  of  vessels  are  used  in  the  transit  service, 
one  consisting  of  ordinary  grain  vessels  which  transship  gram 
in  bulk  through  elevators  from  various  points  on  the  western, 
to  various  points  on  the  eastern  shore  of  Lake  Michigan  and 
the  other  of  car  ferries  which  carry  across  the  lake  in  railroad 
cars  loaded  with  grain.    In  either  case  the  grain  is  carried 
to  the  eastern  markets  by  rail.    The  shipping  PO'nts  include 
Milwaukee  and  smaller  ports  such  as  Manitowoc,  and  the  re- 
ceiving ports  include  points  such  as  Ludington   Muskegon, 
Frankfort  and  Grand  Haven,  Michigan.     (5)  Certain  quanti- 
ties of  American  grain  are  exported  to  European  markets  via 
the  Lake-St.  Lawrence  River  route.    Montreal  is  of  «*  *e 
tgeft  eastern  grain  ports,  receiving  over  50,000,000  busheb 
annually.     Most  of  these  receipts,  however,  consist  of  Ca- 
nadian grain,  the  export  of  American  grain  through  Canada 
in  1914  amounting  to  only  6,821,000  bushels. 

The  all-rail  shipments  predominate  at  those  primary  mar- 

•" Grain  Movement  in  the  Great  Lakes  Region,"  Bureau  of  Sta- 
♦i«tiBR  (^Deoartment  of  Agriculture),  Bulletin  81,  pp.  Mil. 
*"*".e1  export  of  forei^  grain  as  reported  in  the  Annual  Beport 
of  the  Dominion  of  Canada  on  Trade  and  Navigation  (1914),  P-  217. 


9 


(  '^ 


PEIMAKY  AND  SEABOARD  GRAIN  MARKETS    59 

kets  which  are  not  located  on  the  Great  Lakes,  and  also  at 
Chicago,  which  is  so  situated  that  the  railroads  need  not  make 
a  lengthy  detour  in  order  to  reach  the  eastern  grain  markets. 
The  shipments  from  Chicago  respectively  by  lake  and  rail 
are  shown  in  Table  III.  The  lake-rail  route  predominates  at 
the  various  lake  shipping  points  extending  from  points  north 
of  Milwaukee  to  Duluth,  for  at  these  points  the  lake-rail  route 
has  a  pronounced  geographical  advantage.  At  Milwaukee  the 
shipments  are  more  evenly  divided  between  the  lake  and  rail 
routes.  The  volume  of  grain  transshipped  eastward  via  the 
Erie  Canal  has  steadily  declined  in  recent  years,  less  than 
9,500,000  bushels  being  shipped  from  Buffalo  by  canal  in 
1913,  and  less  than  4,500,000  bushels  arriving  at  tidewater 
over  the  canal  route.  In  that  year  the  total  grain  receipts  at 
New  York,  the  largest  seaboard  market,  aggregated  94,625,- 
020  bushels,  37,551,450  bushels  arriving  via  the  all-rail  route, 
including  the  grain  transshipped  across  Lake  Michigan  by 
the  transit  lines,  48,893,125  via  the  lake-rail  route,  4,371,700 
by  canal,  and  3,808,745  by  various  river  and  coastwise  water 
routes.^  The  average  freight  charges  per  bushel  of  wheat 
from  Chicago  to  New  York  have  during  the  years  1900  to 
1913  varied  from  9.60  to  11.70  cents  on  the  all-rail  route, 
from  5.02  to  7.01  cents  on  the  lake-rail  route,  and  from  4.42 
to  6.68  cents  exclusive  of  Buffalo  charges  on  the  lake-canal 
route.^ 

The  movement  from  the  primary  markets  to  the  seaboard 
markets  of  the  Gulf  is  mainly  an  all-rail  movement.  Small 
quantities  are  shipped  southward  on  the  Mississippi-Ohio 
River  system,  but  since  1903  such  shipments  have  not  ex- 
ceeded 400,000  bushels  annually. 

Milling-in-transit. — Much  grain  shipped  to  mills  is  han- 
dled on  so-called  milling-in-transit  privileges,  the  carriers 
granting  a  through  rate  to  final  destination  even  though  the 
grain  is  unloaded  en  route  and  converted  into  flour  and  food- 
stuffs.    Certain  precautions  are  taken  to  avoid  the  abuse  of 


p.  9. 


*  New  York  Produce  Exchange,  Annual  Statistical  Beport  {191Z), 
"Statistical  Abstract  of  the  U.  S.    (1913),  p.  297. 


60  AGEICULTUEAL  COMMEKCE 

the  privilege,  for  the  through  rate  rightfully  applies  only  to 
such  weights  of  flour  and  foodstuffs  as  are  the  equivalents  of 
the  grain  to  which  the  privilege  was  extended  subject  to  rea- 
sonable allowances  for  natural  shrinkage  in  weight  resulting 
from  milling.    The  milling-in-transit  privilege  in  case  of  inter- 
state shipments  is  subject  to  supervision  by  the  Interstate 
Commerce  Commission.     It  may  be  granted  free  of  charges 
other  than  the  regular  freight  rates,  or  special  charges  may  be 
collected   but  the  Commission  has  ruled  that  such  charges 
must  be'  reasonable  and  that  no  unfair  discriminations  or 
fraud  may  legally  be  practiced  in  its  administration. 

The  Seaboard  Markets.— The  grain  receipts  and  exports  of 
the  principal  seaboard  markets  are  shown  in  Table  V.  On 
the  eastern  seaboard  there  are  New  York,  Baltimore,  Phila- 
delphia, Boston,  Portland  (Maine)  and  Newport  News;  on  the 
Gulf  New  Orleans  and  minor  grain-shipping  ports  such  as 
Galv'eston,  Mobile,  Port  Arthur,  Sabine  and  Pensacola;  and 
on  the  Pacific  Coast,  Puget  Sound  ports,  San  Francisco  and 
Portland,  Oregon.     Grain  is  also  exported  by  lake  through 


Receipts  and 


TABLE  V 
Exports  op  Grain*  at  Leading  Seaboabd  MARKETsf 


Market 


New  York 

Baltimore 

Philadelphia. . 

Boston 

New  Orleans . 
San  Francisco. 
Puget  Sound . 
Portland,  Ore. 


1905 


86,978,816 
31,230,770 
24,091,231 
24,747,307 
31,023,070 
16,459,697 


Receipts  att 


1910 


54,149,556 
20,993,895 
17,372,275 
13,666,995 
12,008,000 
19,350,616 

14,607,566 


1913 


90,999,975 
57,299,815 
35,978,020 
32,128,796 
21,564,068 
15,491,915 

31,279,150 


Exports 
from  1913 


41,907,000 

41,665,000 

10,185,000 

6,856,000 

19,016,000 

5,030,000 

5,883,000 

10,055,000 


*  Includes  wheat,  corn  barl^.  oats  and  rye      j,      .    .     ,  PeDorts;  U.  S.  Monthly 
+  Prom  New  York  Produce  Exchange,  Annual  biatisucai  'V^i'^}  *'°; ^'"'.  noi^V- 

Summa^  of  Commerce  and  Finance;  U.  f.  Commerce  and  NavxgaUon  Report  (1913). 

mSSs  Exchange  of  St.  Louia,  Annual  Reports. 
t  Calendar  Years. 


PRIMAKY  AND  SEABOARD  GRAIN  MARKETS    61 

« 

the  Welland  Canal  and  via  the  St.  Lawrence  River  from  Chi- 
cago, Duluth,  Detroit  and  other  Great  Lake  ports. 

The  large  eastern  seaboard  markets  distribute  grain 
throughout  the  East,  export  grain  to  foreign  markets,  and  act 
as  ports  through  which  grain  exported  from  the  interior  is 
shipped  abroad.  To  accomplish  these  functions  they  are 
equipped  with  terminal  elevators  and  organized  grain  ex- 
changes in  much  the  same  way  that  the  primary  markets  are 
equipped.  Their  principal  grain  business  is  gradually  becom- 
ing one  of  domestic  distribution  rather  than  of  foreign  ex- 
ports, for  the  entire  grain-export  trade  of  the  United  States 
has  declined  from  378,686,000  bushels  in  1900  to  193,786,000 
in  1913.  The  European  War  has  caused  a  temporary  in- 
crease in  exports,  but  the  home  needs  for  grain. and  flour  have 
during  the  twentieth  century  increased  more  rapidly  than 
the  country's  grain  crop. 

The  Pacific  seaboard  markets,  in  addition  to  domestic  dis- 
tribution and  foreign  exportation  of  grain,  also  act  as  pri- 
mary, and,  in  many  instances,  as  local  grain  markets.  As 
was  described  in  the  previous  chapter,  the  system  of  grain 
marketing  on  the  Pacific  Slope  differs  widely  from  the  system 
prevailing  east  of  the  Rocky  Mountains.  There  are  no  pri- 
mary markets  in  the  interior  of  Washington,  Oregon  and  Cali- 
fornia, the  grain  being  shipped  directly  from  the  local  ship- 
ping points  to  the  seaboard  markets  over  rail  or  river  routes. 
It  is  there  sold  to  local  consumers,  is  distributed  to  western 
markets  by  rail  or  coastwise  carriers,  or  is  exported  to  Euro- 
pean and  Oriental  markets.  Some  Pacific  Coast  grain,  chiefly 
barley,  is  shipped  to  the  eastern  markets  of  the  United  States, 
and  it  is  possible  that  somewhat  larger  quantities  will  be 
shipped  to  those  markets  now  that  the  Panama  Canal  has 
been  opened  to  sea-going  vessels. 


Activities  and  Management  of  Terminal  Elevators 


N"o  mechanism  of  the  primary  grain  markets  is  so  im- 
portant as  the  terminal  elevator  system.    It  has  indeed  been 


62 


AGRICTTLTURAL  COMMERCE 


stated  that  ^^the  history  of  the  primary  market  has  heen  the 
history  of  the  terminal  elevator  systems/' 

The  Functians  of  Terminal  Elevators. — The  terminal  ele- 
vators are  the  country's  greatest  grain  storehouses.  Their 
principal  function  is  to  provide  storage  facilities  for  much  of 
the  vast  quantities  of  grain  which  are  sold  by  the  growers 
during  the  months  immediately  following  the  harvesting  sea- 
sons and  most  of  which  cannot  find  storage  in  the  relatively 
small  country  elevators.  Public  terminal  elevators  store  grain 
for  their  owners  who  are  mainly  grain  dealers,  and  also  for 
any  other  persons  who  desire  to  store  grain  subject  to  the 
charges  and  conditions  imposed  by  the  state,  the  grain  ex- 
changes and  the  elevator  companies.  Private  elevators — those 
connected  with  mills,  malt  houses,  linseed  oil  companies  and 
other  industrial  concerns  or  grain  interests  and  not  open  to 
the  public — also  store  great  quantities  of  grain  for  the  con- 
cerns which  own  or  operate  them. 

Terminal  elevators,  moreover,  facilitate  the  shipment  of 
grain,  for  many  of  them  have  both  rail  and  water  connections 
and  all  of  them  are  so  connected  with  the  railroads  that  cars 
arriving  from  or  destined  to  any  part  of  the  country  can 
readily  be  switched  to  or  from  them.  The  elevators  are  so 
equipped  that  grain  in  bulk  can  rapidly  and  at  little  cost  be 
loaded  into  or  unloaded  from  railroad  cars  or  vessels.  Some 
of  them  are  specially  constructed  to  transfer  grain  from  rail- 
road car  to  lake  vessel  or  in  the  opposite  directions.  They 
also  facilitate  the  inspection,  grading  and  weighing  of  grain, 
and  some  of  them  the  cleaning,  drying  and  mixing  of  grain. 
They  promote  the  work  of  the  grain  exchanges  and  the  vari- 
ous functions  of  primary  markets  which  were  previously  men- 
tioned. {See  page  56.)  The  central  elevators  located  at 
inland  transfer  points  such  as  Buffalo,  and  at  the  seaboard 
markets,  perform  the  same  functions  as  those  located  at  the 
primary  markets  of  the  interior,  but  in  some  cases  their  prin- 
cipal use  is  the  transfer  rather  than  the  storage  of  gr^in.  . 

Construction  and  Capacity  of  Terminal  Elevators.— In  or- 
der to  perform  their  various  functions  expeditiously  it  fol- 
lows that  the  terminal  elevators  must  be  larger  than  the  qoun- 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    63 


try  elevators  from  which  they  obtain  their  supply  of  grain,  and 
that  they  must  be  equipped  with  a  view  to  handling  and 
storing  larger  quantities  of  grain.  Twenty-two  of  the  ele- 
vators of  Chicago,  for  example,  have  a  storage  capacity  of  one 
million  or  more  bushels  each,  and  one  of  them  has  a  capacity 
of  three  and  another  of  five  million  bushels.  Terminal  ele- 
vators are  designed  in  widely  varying  ways,  and  many  of  those 
built  during  the  last  decade  are  models  in  design,  equipment 
and  construction.  They  are  variously  built  of  steel,  concrete, 
brick  and  stone.  Their  equipment  may  be  driven  with  elec- 
tricity or  steam,  they  may  receive  railroad  cars  alongside  or 
within  tunnels,  and  their  storage  bins  may  be  provided  within 
the  main  structure  or  partly  within  annexed  storage  tanks  or 
towers.  They  are  variously  equipped  with  hoppers,  endless 
chain  carriers,  belt  conveyors,  power  shovels,  grain  spouts, 
scales,  cleaning  machines,  dryers,  blowers  and  scouring  plants. 

The  total  elevator  capacity  of  Chicago  is  nearly  59,000,000 
bushels,  of  Minneapolis  nearly  41,000,000,  Duluth  over  32,- 
250,000,  Milwaukee  15,500,000,  St.  Louis  12,000,000,  and 
Kansas  City  11,250,000.  Buffalo,  being  the  principal  point  of 
transfer  for  lake  grain,  has  an  elevator  capacity  of  over 
22,000,000  bushels.  The  elevator  capacity  of  the  eastern  sea- 
board markets  is  less  than  that  of  the  primary  markets  of 
the  interior,  because  their  need  for  vast  storage  capacities  is 
smaller.  Not  only  do  they  handle  smaller  quantities  of  grain, 
but  much  of  the  grain  exported  merely  passes  through  their 
elevators  as  a  means  of  transfer  from  railroad  car  to  ocean 
carrier.  The  elevator  storage  capacity  of  New  York  is  11,- 
305,000  bushels,  of  Baltimore  5,100,000,  of  New  Orleans  5,- 
180,000,  and  of  Philadelphia  4,388,000. 

Elevator  Ownership. — Prior  to  1887  the  public  elevators 
of  Chicago  were  mainly  owned  or  operated  by  the  grain-carry- 
ing railroads  and  by  warehousemen.  In  either  case  they  were 
operated  by  concerns  whose  sole  interest  in  them  was  the 
warehousing  or  transfer  of  grain.  About  1885,  however, 
the  railroads  made  rules  permitting  the  sale  of  grain  in  the 
cars.  They  allowed  twenty-four  hours  for  inspection  and  sev- 
enty-two hours  for  its  removal  from  the  cars,  and  their  former 


4 


; 


Iril 


64 


AGRICULTURAL  COMMERCE 


demurrage  charges  were  diseontiniied.    The  amount  of  track 

selling  and  selling  by  sample,  and  the  volume  of  grain  passing 

through  Chicago  without  being  unloaded  then  became  so  large 

that  the  railroads  centering  at  Chicago  and  owning  elevators 

and  other  expensive  terminal  properties  there  were  confronted 

by  a  threatening  situation.    At  the  same  time  the  southwest 

movement  of  the  winter  wheat  and  corn  districts  and  the 

movement  iof  export  grain  to  the  Gulf  began  to  favor  St.  Louis, 

and  the  newer  markets  of  the  trans-Mississippi  Valley,  and 

the  northwest  movement  of  the  spring  wheat  belt  favored 

Minneapolis  and  Duluth.    The  railroads  centering  at  Chicago, 

fearing  the  Interstate  Commerce  Act,  which  was  enacted  in 

1887,  and  the  probability  of  hostile  public  sentiment,  did  not 

feel  able  to  return  to  the  old  regulations  which  had  practically 

compelled  the  storage  of  grain  in  their  terminal  elevators. 

They  therefore  decided  to  sell  or  lease  their  terminal  elevators, 

as  well  as  such  country  elevators  as  they  owned,  to  various 

central  grain  dealers.     Since  it  would  be  to  the  interest  of 

these  dealers  both  as  grain  dealers  and  as  elevator  concerns 

to  fill  their  elevators  with  grain,  the  position  of  Chicago  as  a 

grain  market  and  the  grain  traffic  of  the  railroads  would  be 

maintained.     By  1894  the  shifting  of  public  elevators  from 

railroads  and  warehousemen  to  grain  dealers  had  been  largely 

accomplished,  and  thereafter  the  elevator  concerns  controlled 

a  large  share  of  the  grain  trade  of  Chicago. 

At  present  most  of  the  public  elevators  in  other  primary 
markets  as  well  as  in  Chicago  are  operated  by  large  grain 
dealers.  Some  elevators  are  still  operated  by  concerns  which 
are  primarily  in  the  business  of  warehousing,  and  the  rail- 
roads, also,  operate  some  of  the  public  elevators  at  the  pri- 
mary and  seaboard  markets  and  at  transshipment  points. 
Railroad  ownership  is  confined  mainly,  though  not  entirely,  to 
large  transfer  elevators  used  to  transship  grain  to  or  from 
railroad  cars,  lake  vessels,  canal  boats  and  ocean  carriers. 

In  addition  to  the  public  elevators,  there  are  many  pri- 
vate elevators  which  do  not  conduct  a  public  warehousing 
business.  They  are  owned  and  operated  principally  by  flour 
and  grist  mills,  malting,  cereal  food,  linseed,  yeast  and  other 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS 


65 


industrial  concerns,  and  by  grain  dealers  who  use  them  solely 
in  their  own  grain  business. 

Since  the  elevators  at  the  primary  markets  are  owned  or. 
operated  by  a  relatively  small  number  of  warehousemen,  most 
of  whom  are  grain  dealers,  the  amount  of  competition  withm 
any  one  of  the  primary  markets  is  smaller  than  it  was  in  the 
past,  when  the  bulk  of  the  grain  stored  in  the  elevators  was 
owned  by  a  large  number  of  dealers  who  did  not  own  elevator 
properties.  The  amount  of  competition  has,  moreover,  at 
times  been  further  controlled  at  some  of  the  primary  markets 
and  transshipment  points  by  the  formation  of  elevator  asso- 
ciations, pools  or  combinations.^  That  such  cooperation  has 
been  generally  practiced  at  all  the  large  grain  markets,  or  that 
it  has  had  a  general  effect  upon  grain  prices,  has  not  been 
established.  The  reduced  competition  within  the  individual 
grain  markets  is  largely  counterbalanced  by  the  competition 
which  exists  between  the  primary  markets. 

Eegulation  by  the  States.— Public  terminal  elevators  are 
in  some  states  subjected  to  state  regulation  in  much  the  same 
manner  that  the  charges  and  services  of  common  carriers  are 
publicly  controlled.    The  railroad  and  warehouse  laws  of  Min- 
nesota define  public  elevators  as  ''all  elevators  or  warehouses 
located  within  the  switching  limits  of  St.  Paul,  Minneapolis 
and  Duluth,  and  other  points  in  the  state  which  are  now  or 
may  hereafter  be  designated  as  terminal  points  in  which  grain 
is  received  for  storage  in  bulk,  and  that  of  different  owners 
mixed  together  or  so  stored  that  the  identity  of  the  different 
lots  or  parcels  is  not  preserved.''  ^    j^  Illinois  public  elevators 
are  divided  into  three  classes,  the  extent  of  public  regulation 
varying  for  the  different  classes.    Class  "A"  includes  all  ware- 
houses and  elevators  located  in  cities  of  at  least  100,000  in- 

^See  Proceedings  of  N.  Y.  Barge  Canal  Terminal  Commission, 
vol  i-  ''Grain  Exchanges,''  Hearings  before  House  Committee  on 
Euies'on  House  Eesolution  24,  Mar.  3-7,  1914;  Testimony  taken  by 
Interstate  Commerce  Commission  Oct.  15,  Nov.  23,  1906,  in  matter 
of  Eelations  of  Common  Carriers  to  the  Grain  Trade,  Senate  Docu- 
ment 278,  59th  Cong.,  2d  Sess.;  and  Eeport  ot  Bureau  of  Corpora- 
tions on  Transportation  by  Water,  Part  II. 

'General  Statutes,  Minnesota   (1913),  chap.  28,  Sec.  4435. 


V 


ee 


AGRICULTUEAL  COMMERCE 


habitants  and  in  which  grain  is  stored  in  hulk,  and  grains 
of  different  owners  are  mixed  together,  or  their  identity  is 
lost.     Class  "B"  includes  all  other  elevators  and  warehouses 
where  grain  is  stored  in  bulk  and  is  mixed  together;  and 
Class  "C  includes  all  other  elevators  and  warehouses  where 
property  of  any  kind  is  stored  for  pay.^    The  grain  inspection 
and  weighing  law  of  Missouri  defines  public  warehouses  as 
'^all  buildings,  elevators  or  warehouses  located  in  any  territory 
wherever  grain  inspection  and  weighing  may  be  established 
by  the  state  board  of  railroad  and  warehouse  commissioners, 
in  accordance  with  the  provisions  of  this  article,  owned  or 
operated,  or  which  hereafter  may  be  owned  or  operated  by  any 
person  or  persons,  association,  co-partnership  or  corporation 
and  used  for  storing,  transferring,  handling  or  mixing  the 
grain  of  different  owners."  ^    The  three  definitions  given  serve 
to  illustrate  that  public  elevators  are  more  comprehensively 
defined  in  some  states  than  in  others.     All  the  definitions, 
however,  include  the  elevators  of  primary  grain  markets  in 
which  grain  of  different  owners  is  stored  in  bulk  and  mixed  so 
that  its  identity  is  lost. 

The  methods  and  extent  of  the  control  exercised  by  the 
states  over  public  terminal  elevators  varies.  It  is  a  common 
practice,  however,  (1)  to  prohibit  all  discrimination  in  charges 
and  services;  (2)  to  require  public  elevators  to  receive  all 
grain  offered  to  the  extent  of  their  capacity,  subject  to  reason- 
able exceptions  as  to  damp,  musty  or  other  grain  not  in  proper 
condition  for  storage;  (3)  to  prohibit  the  mixing  of  different 
grades  or  otherwise  transferring  grain  belonging  to  persons 
other  than  the  proprietors  of  the  elevators;  (4)  to  require  the 
licensing  of  public  elevators  and  the  bonding  of  elevator  con- 
cerns; (5)  to  require  the  posting  of  elevator  charges  at  stated 
times  and  to  prohibit  their  increase  during  the  following  year ; 
(6)  to  permit  grain  owners  and  inspectors  to  examine  stored 
grain  at  any  reasonable  time;  (7)  to  establish  the  lien  which 
the  warehouseman  has  on  stored  grain  in  case  of  failure  to 
pay  storage  or  other  lawful  charges;  and   (8)  to  place  the 

» Illinois  Statutes  (1913),  chap.  114,  Sec.  8965. 

'  Inspection  and  Weighing  Act  of  April  12,  1907,  Sec.  7625. 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    67 


public  elevators  at  the  primary  markets  under  the  general 
supervision  of  the  state  railroad  and  warehouse  commission, 
public  utilities  commission,  or  other  public  authority,  as  to 
maximum  elevator  charges,  the  establishment  of  grades  and 
grading  rules,  inspection  and  weighing  fees,  licensing  and 
bonding,  rules  for  the  receipt,  care  and  delivery  of  grain, 
rules  for  the  issue,  registration  and  cancelation  of  ware- 
house receipts,  and  certain  other  matters  affecting  the  grain 
trade. 

(9)  Public  terminal  elevators  are  commonly  required  to 
post  or  publish  a  weekly  statement  of  the  amount  of  each  kind 
and  grade  of  grain  in  store  at  the  close  of  the  previous  week, 
and  to  file  a  similar  statement  with  a  specified  public  official. 
Each  public  warehouseman  is  also  required  to  make  a  daily 
report  to  the  same  official  of  the  following  information : 

The  amount  of  each  kind  and  grade  of  grain  received  in 
store  in  such  warehouse  on  the  previous  day,  also  the  amount  of 
each  kind  and  grade  of  grain  delivered  or  shipped  by  such 
warehouseman  during  the  previous  day,  and  what  warehouse 
receipts  have  been  canceled,  upon  which  the  grain  has  been 
delivered  on  such  day  giving  the  number  of  each  receipt,  the 
amount,  kind  and  grade  of  grain  received  and  shipped  upon 
each,  also  how  much  grain,  if  any,  was  so  delivered  or  shipped 
and  the  kind  and  grade,  for  which  warehouse  receipts  had  not 
been  issued  and  when  and  how  such  unreceipted  grain  was 
received  by  them,  the  aggregate  of  such  reported  cancellations 
and  delivery  of  unreceipted  grain,  corresponding  in  amount, 
kind  and  grade  with  the  amount  so  reported  delivered  or 
shipped.  They  shall  also,  at  the  same  time,  report  what  re- 
ceipts, if  any,  have  been  canceled,  and  new  ones  issued  in  their 
stead  as  herein  provided  for.  And  the  warehouseman  making 
such  statements  shall,  in  addition,  furnish  the  card  registrar  any 
further  information  regarding  receipts  issued  or  canceled  that 
may  be  necessary  to  enable  him  to  keep  a  full  and  correct 
record  of  all  receipts  issued  and  canceled,  and  of  grain  re-' 
ceived  and  delivered.* 

A  copy  of  the  daily  report  of  grain  shipments  required  in 
Chicago  is  shown  in  Form  No.  1. 


V 


» Illinois  statutes  (1913). 


li 


68 


AGBICtlLTtlRAL  COMMERCE 


(10)  A  common  requirement  is  that  the  grain  received  at 
and  shipped  out  of  the  puhlic  terminal  elevators  shall  be 
graded  and  the  inspection  certificates  issued  exclusively  by 
state  grain  inspectors.^ 

(11)  The  weighing  of  grain  at  the  elevators  is  ordinarily 


' 

ttrntUH.  t-U-   SM.  <M« 

PAlirV  RTATEMKNTof.,   ...,,..,....-..-..                  _„...,.     .,    .,    . 

■ttdc  to  the  Warehouse 

Rctfiotrar  Chmir'                                *'^-      of  the  unount  of  «»ch  kind  ind  erade  of  gnin 

deliveied  or  shipped  by  us  on  this  day.    Alio  a  latemcnl  of  the  Wirehouse  Receipo  tha  have  been  cancelled  br  us, 
upon  which  the  pain  haa  been  delivered,  on  fuch  dar.     Also  the  amount,  kind  and  grade  of  pain  to  delivered  or  thipped  for  which 
Warehouse  Receipts  had  not  been  itsuied,  and  when  and  how  such  uhfcceipted  giain  was  rcceivtd  bjr  ut.    Abo  a  dcsciipiioii  of 
such  fcceipa  as  have  been  cancelled  bjr  us  and  new  ones  issued  in  their  stead. 

DO  HOT  "BUNCH"  SHIPnilTS 

■ 

RECEI 
No. 

"■              DATS     1 

BUSUE 

LS         LBS 

KIND  and 

GRADE 

RECEU 
No. 

"        DATE  1 

BUSHE 

LS        LBS 

KINO  and 
GRADB 

. 

■ 

Ace  un  of 

AriMurr  of 

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AflM  UD'    sh 

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4, 

^.v. 

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4'K- 

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G  mil    Inipcctm 

dch 
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:k  «  ith        ' 
>on   at        ^ 

y/  ^ 

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char]  ed  iffi 
Rcr  tri  ioT 

n«  cac     order  it 
De  art   lent.    Sho 

led 

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tin   on 

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cMir    a  wrt 

bti  in  I     receipt* 

n  « 

1   oiJci 

/ 

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1 

•"• 

FOBM   1 


placed  under  state  control  to  some  extent.  The  scales  are 
usually  subject  to  state  inspection,  and  the  maximum  weigh- 
ing charges  regulated  by  law  or  authorized  public  authority. 
In  some  states  the  grain  bought  and  sold  at  the  primary  mar- 

'^8ee  chap.  xiii.  * 


PRIMAKY  AND  SEABOARD  GRAIN  MARKETS    69 


CERTIFICATE. 


V.  B.TKDVOSIX 


FOR  THK  StATE  OF  MISSOURI, 
.pro.*,*  5^^^, 


^9&- 


imilAL     I  fLACS 


aTATS  WBIOBn 


J__l 


CtrtUM  Correct  §s  WejgMia  U^er  Sciks. 


cno  mtn  wttomAna. 


ftft. 


Mi  ittmm,  s>^>ifc>itellii 


FOBM   2 


kets  is  weighed  by,  and  weight  certificates  are  issued  by,  state 
weighmasters.  Form  No.  2  contains  the  reproduction  of  a 
weight  certificate  such  as  is  issued  by  the  state  of  Missouri. 


-Ba«  u«_ 


Condition  Blank. 


Oal«. 


Mtal. 


L*al^«t  Bottom  of  GnlD  Dear   .  O^ 

Ova         ••     ••   '.  a 
.BdSoT^     -      -    ,o< 

tCorrricltted)     -  11   I 


at  ShlfM  GmIo  Door 

Laioibcr  Deo*  .  . 
StfcofCw.  .  . 
biofCof.   •  . 


.  O       LcaUaf  atDoorPM O 

.  D  "     lirfPVMi a 

.  O  KiDffBoh D 

.  a  DmwBot Q 

.a  BettomofCat.   .   .   .Q 


FOBM  3 


(12)  The  weighmasters  or  grain  inspectors  are  in  some 
states  required  to  make  reports,  either  on  the  back  of  the 
weight  certificate  or  on  a  separate  blank,  showing  the  condi- 
tion of  the  grain  cars  weighed.  A  reproduction  of  the  "report 
of  defective  and  leaky  condition  of  cars"  required  from  the 


1^ 

mwa.  at 

*43   ■..• 

P« 

^:^i 

F««#/y%* 

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PfCSCfucu  lur 

— I 

CMCCKCO  BY 

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fn                      -^ 

meoator.                          1 

... 

"""^*fnrt?A'3^"''^'^''^' ""         Chicago, -  -  - - -  /^/    i 

( 

w.  ar  wtmrt    1  mti  or  itctin  1 

tWTUL 

«u  Mwsn       1  i»Ti»i   1      eA«  MiiKi        1      wsHtu       1  HI  1      MUlt  m  trao 

f 

i        .     1    1 

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td 

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» 

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0-.OK,0-V 

SHIPMEIIT 

BECtlPTi, 

APt-LiCATlUW  AMO  AODITIOH 

ffl^ 

ACSISrCfffO  fOff  OAtfOCUATHm                                                                1 

NOOFRECEIPt|       receipt      1                ELEVATOR 

SPECIAL  BIN  NO 

BUSHELS 

LBS 

GRADE  AND  KIND 

• 

pu 

it 
on 

III). 
=  ■1 

Ut«  HpanM  ibMt  (oc  each   ll<i 
Do  not  put  ipecial-tHn  ind  r||(U 

ato 

V 

pIK 

Bti 

m. 

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— 

— 

1 — 

^ 


Form  5 
70 


PKIMARY  AND  SEABOARD  GRAIN  MARKETS    71 

deputy  weighmasters  at  Chicago  by  the  State  Grain  Inspec- 
tion Department  of  Illinois  is  contained  in  Form  No.  3. 

(13)  Public  grain  elevators  are  commonly  required  to 
issue  elevator  or  'Varehouse  receipts''  covering  all  the  grain 
publicly  stored  in  them.  The  grain  states  usually  have  laws 
either  permitting  or  requiring  the  issue  of  negotiable  or  trans- 
f  errable  warehouse  receipts,  and  in  some  states  the  receipts  are 


FFICl!  Ota 


N?     3525 


^  WAREHOUSE  REGISTRAR  OF  GRAIN  FOR  THE  CITY  OF  CHICAGO 


.191— 


,To  the  Deputy  State  Grair  Inspector  in  charge  of 


^Elevator. 


You  are  hereby  authorized  to  inspect  Out  of  said  elevator 
.bushels  of  i       ■  ' 


r  accounttoL. 


al 


ie 


arehpuse  Receipts  for  same  having  been  sumped  "Registettd  for  Cancellation." 
This  order  must  be  held  as  your  authority  pj  abov 
Very  respcctfull 


This  Order  MUST  BE      j^?,;^/^,^, ,  ,^j 


Sent  to  STATE  INSPECTOR  at 

Elevator  IMMEDIATELY. 


TJ^Wff. 


Form  6  (front) 

negotiable  unless  plainly  marked  otherwise.  Upon  the  presen- 
tation of  properly  indorsed  negotiable  receipts  which  were 
issued  for  grain  stored  in  bulk  and  mixed  with  other  grain  of 
the  same  grade  so  as  to  lose  its  identity,  the  elevatormen  are 
required  to  deliver  grain  of  the  grade  specified  in  the  receipt. 
When,  however,  grain  is  stored  in  special  bins  so  as  to  retain 
its  identity,  and  in  some  states  such  bins  must  be  provided 
when  requested  by  owner  of  the  grain,  a  special  warehouse  re- 
ceipt is  required  and  the  grain  delivered  must  be  the  identical 
grain  for  which  the  receipt  was  issued. 

The  grain  states  penalize  severely  the  fraudulent  issue  of 
warehouse  receipts,  but  for  further  precaution  some  of  them 
in  addition  require  that  they  shall  be  registered  with  a  state 


It 


n 


AGRICtJLTTTRAL  COMMERCE 


grain  registrar  at  the  time  of  issue,  and  be  canceled  by  him 
upon  delivery  of  the  grain  which  they  represent.  The  public 
elevators  of  Chicago  are  required  to  report  all  receipts  issued 
within  twenty-four  hours  to  the  State  Registrar  upon  Form 
No.  4.    They  are  prohibited  from  delivering  any  grain  upon 


SHIPMENTS  ON  TQIS  ORDER 


_191. 


M.-»tWli   !■  ^11      Itt.. 


JSU% 


.19t 


.Ab.  .11  I  Hm,. 


.xafs 


.t9t. 


Ihi  mmm  ttn 


.cut 


-W      nil  pill      I e^i jtuli' |i<[i  Tbtfi  I 


JBU% 


MX. 


-Wt. 


ffti     1^—1     iM 


I  I  ■   r  nrt 


DBWCTIONS  ACCOUNT  OF  IEGI3TERE0  BAUNCES  01  RBSSUES 


J91. 


-ba.   ■  ..  Ibfc 


-WU 


*■"  *^ 


TotaU 


Titt. ..     1t» 


■  OE|^y  SlAtc  Crmls  latyectar 


Form  6  (back) 

such  receipts  unless  they  are  stamped  or  plainly  marked 
"registered  for  cancelation/'  and  after  the  grain  has  been  de- 
livered the  elevatormen  are  within  twenty-four  hours  re- 
quired to  report  the  canceled  receipts  to  the  Registrar  on 
Form  No.  5.  The  grain,  moreover,  may  not  be  delivered  be- 
fore it  has  been  "inspected  out"  of  the  elevator  by  a  state  grain 
inspector,  who  acts  upon  receipt  of  an  "order"  from  the  Regis- 
trar (Form  No.  6).     Should  it  be  desired  to  reissue  any  out- 


W- 


(li 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    73 

standing  receipts,  or  "split"  them,  i.  e.,  issue  several  new  for 
one  outstanding  receipt,  the  old  receipts  must  be  duly  can- 
celed and  must  be  reported  to  the  Registrar  on  Form  No.  7. 
The  jorm  of  warehouse  receipts  is  in  some  states  fixed  by 
law.    The  warehouse  receipt  acts  of  Minnesota  (1913)  and 


~T 

r>xmV 

^" 

PRESENTED  FOR  CANCELATION.  FOR  reissUE. 

CHECKED  BY 

RtCElPTS 

APPLICATION 

BY 

n. < <!.:.  Di L  1 D.ii:.»_i>:._                        ^^t^t^ 

«o« 

MO.  Of.  RECEIPT 

DATE  OF  RECEIPT 

ELEVATOR 

SPECIAL    1 
BIN  .NO. 

BUSHELS 

LBS. 

GRADE     AND     KINO. 

~ 

i 

. 

t 

i 

.  _     .,              _  .  ,  . 

i 

1 

. 

_ 

. 

^ 

1 

7^, 

Form  7 

Illinois  (1907),  for  example,  provide  that  the  receipts  shall 
contain  the  following  provisions : 

1.  The  location  of  the  warehouse  in  which  the  grain 

,  is  stored. 

2.  The  date  of  issue. 

3.  A  consecutive  number. 

4.  A  statement  whether  the  grain  received  will  be  de- 
livered to  bearer,  to  a  specified  person,  or  to  a 
specified  person  or  his  order. 

5.  The  rate  of  storage  charges. 

6.  A  description  of  the  goods  or  packages  stored. 

7.  The  signature  of  the  warehouseman  or  his  agent- 


74 


AGRICULTTJEAL  COMMERCE 


8.  If  the  receipt  is  issued  for  goods  of  which  the  ware- 
houseman is  owner,  either  solely  or  jointly  or  in 
common  with  others,  the  fact  of  such  ownership. 

9.  If  negotiable,  a  statement  of  advances  made  and  lia- 
bilities for  which  the  warehouseman  claims  a  lien. 

These  statutes  provide  that  other  provisions  may  be  con- 
tained in  a  warehouse  receipt,  but  that  such  provisions  may  not 
be  in  violation  of  any  laws  of  the  state  and  may  not  release 
the  warehouseman  from  the  exercise  of  reasonable  care.    In 


Form  8 

addition  to  the  direct  requirements  of  the  Illinois  statute,  the 
elevators  of  Chicago  were  by  order  of  the  Railroad  and  Ware- 
house Commission,  issued  September  7,  1911,  required  to 
print  or  stamp  upon  their  receipts  the  words :  ^'This  receipt 
should  be  reported  and  registered  with  the  Registrar  of  the 
Illinois  Grain  Department  of  the  Railroad  and  Warehouse 
Commission  within  24  hours  after  its  issue." 

A  typical  St.  Louis  negotiable  warehouse  receipt,  showing 
state  registration  and  cancelation,  is  reproduced  in  Form 
No.  8. 

Regulation  by  Grain  Exchangees. — The  terminal  elevators 
of  the  primary  markets  are  regulated  not  only  by  the  states, 
but  also  by  the  grain  exchanges  under  whose  auspices  most  of 
the  grain  trading  at  these  markets  is  conducted.     While  ele- 

yator  rules  of  the  exchanges  differ,  those  of  the  Chicago  Board 


jV 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    16 

of  Trade  may  be  regarded  as  typical.  The  exchange  rules 
applicable  in  Chicago  divide  public  elevators  into  two  classes : 
(1)  regular  elevators,  the  grain  of  which  is  deliverable  upon 
Chicago  Board  of  Trade  contracts,  and  (2)  elevators  not  regu- 
lar, the  grain  of  which  is  not  so  deliverable.  In  order  that 
elevators  may  be  declared  regular  they  must  conform  to  the 
following  code  of  rules : 

1.  Their  proprietors  or  managers  must  be  of  unques- 
tioned financial  standing  and  credit. 

2.  Regular  elevators  must  be  so  situated  that  they  may  be 
conveniently  approached  by  vessels  of  ordinary  draft  and  must 
be  connected  with  one  or  more  eastern  railroads. 

3.  They  must  be  provided  with  modern  receiving, 
handling  and  shipping  appliances. 

4.  They  must  cooperate  with  the  warehouse  receipt  regis- 
tration system  provided  by  law. 

6.     They  must  promptly  report  damage  to  grain  in  store. 

6.  In  case  of  change  of  condition  or  evasion  of  Board 
requirements,  they  may  at  any  time  be  removed  from  the  list 
of  regular  elevators. 

7.  Certain  special  rules  are  provided  for  elevators  storing 
flaxseed. 

8.  Regular  elevators  must  permit  duly  authorized  ex- 
change committees  to  examine  their  books  and  records  in 
order  to  ascertain  the  stock  of  grain  and  flaxseed  in  store. 

9.  Their  warehouse  receipts  must  not  voluntarily  be 
made  regular  for  delivery  upon  other  exchanges. 

10.  All  grain  received  in  or  shipped  out  of  them  must  be 
weighed  by  the  official  Board  of  Trade  weighmaster. 

The  Board  of  Trade  may  in  case  of  emergency  declare  any 
elevators,  vessels,  or  other  places  in  Chicago  suitable  for 
storage  to  be  temporarily  regular.  It  has  also  fixed  the  maxi- 
mum storage  charges  of  regular  elevators ;  it  regulates  the  life 
of  the  warehouse  receipts  accepted  for  regular  deliveries;  it 
publishes  the  incomes  of  all  regular  elevators ;  and  it  posts  any 
irregularities  which  may  arise. 

The  Board  operates  a  "Grade  Sampling  and  Seed  Inspec- 
tion Department/^  which  in  cooperation  with  the  state  grain 


76 


AGKICULTUKAL  COMMERCE 


inspectors,  as  far  as  practicable,  obtains  samples  of  all  graded 
grain  stored  in  elevators  or  arriving  in  cars.  It  maintains 
standard  grain  samples,  it  takes  up  with  the  State  Inspection 
Department  any  instances  of  improper  grading  of  grain  which 
it  may  discover,  and  it  grades  flaxseed  in  accordance  with 
grades  and  grading  regulations  adopted  by  the  Board. 

The  Chicago  Board  of  Trade  also  maintains  a  Weighing 
Department  and  a  Custodian  Department,  both  of  which  are 
under  a  Chief  Weighmaster  and  Custodian.  The  former  de- 
partment weighs  the  grain  shipped  into  and  out  of  the  ele- 


OFdCUIL  CEKnnCXTE 


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rnx^S  "^haf  car<9  &s  sspeci/ied  below  were  weigfied 
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Form  9 

vators  and  issues  weight  certificates.  The  custodian  service 
which  has  been  extended  to  nearly  all  important  elevators 
keeps  a  record  of  Board  of  Trade  weights,  issues  certificates 
showing  the  weight  of  grain  unloaded  from  cars  into  elevators, 
prevents  the  ^^oading  ouf  of  grain  until  the  elevator  manager 
surrenders  the  properly  indorsed  certificates  for  cancelation, 
and  cancels  certificates  to  cover  the  amount  of  shrinkage  inci- 
dental to  the  handling,  cleaning  and  clipping  of  grain  and  any 
variations  between  the  weight  of  grain  at  the  time  it  is  un- 
loaded and  when  it  is  shipped  out  of  the  elevators.  Copies  of 
the  weight  and  custodian  certificates  issued  under  the  juris- 
diction of  the  Chicago  Board  of  Trade  are  reproduced  in 
Forms  9  and  10. 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    77 

The  extent  to  which  terminal  elevators  are  regulated  by 
the  grain  exchanges  depends  somewhat  upon  the  amount  of 
control  exercised  by  the  states.  When  the  states  perform  the 
weighing,  inspection,  and  grading  of  grain,  and  the  registra- 
tion of  warehouse  receipts,  and  when  they  extensively  regulate 
the  form  of  warehouse  receipts,  the  keeping  of  records,  the 
filing  of  reports,  and  the  liabilities,  duties,  and  facilities  of 
elevators,  the  elevator  rules  of  the  exchanges  are  less  compre- 
hensive than  in  states  where  there  is  little  public  control. 

It  is  for  this  reason  that  the  exchanges  at  the  seaboard 
markets  regulate  the  grain  elevators  in  greater  detail  than  do 


OFFICIAL  CERTIFICATE 

OrtMB. 


Oastodlan  D^parimenl  of  Ihe  Board  off  Trodo 


OF  THE  CITY  OF  CHICAGO 


Chicago,  Dfino^ 


-191— 


J  Hereby  Certify,  That  this  day  aU 


Centrar  Elevator  A 


-the  content! 


of  the  car  specified  bdow  was  ijnloaded  under  the  supervision  of  this  Department  which  will  not  be 
loaded  out  except  upon  surrender  of  this  receipt  for  cancellation  as  provided  in  the  rules  and  r^;ula- 
tioos  of  the  Board  of  Trade  of  the  City  of  Chicago,  governing  the  Custodian  Department 


/f^^^^^ 

CAR 

NUMBER 

WEIGHT 

> 
CONTENTS 

li    ^ 

l^          *►            1 

^*>^ 


«> 


H.  A.  FOSS,  CUSTODIAN 


Form  10 

the  exchanges  at  the  primary  markets  of  the  interior.  The 
New  York  Produce  Exchange,  for  example,  provides  in- 
spectors to  perform  the  inspection  and  grading  of  grain, 
weighmasters  to  do  the  weighing,  and  a  registrar  to  keep  ac- 
count of  the  issue  and  cancelation  of  the  receipts  issued  by 
regular  elevators  and  of  all  grain  received  and  delivered  at  such 
elevators.  The  exchange  establishes  the  grades  and  grading 
rules  of  the  port ;  it  regulates  the  mixing  of  grain ;  it  provides 
for  daily  elevator  reports,  for  the  examination  of  stored  grain 
by  its  owners  or  by  inspectors,  and  for  immediate  notice  of 
grain  in  poor  condition. 

The  form  of  warehouse  receipts,  which  in  many  of  the  pri- 


78 


AGRICULTURAL  COMMERCE 


mary  markets  is  established  by  state  laws,  is  ia  New  York 
determined  by  the  Exchange.  Instead  of  one  general  ware- 
house receipt  for  grain  stored  in  bulk  and  the  identity  of 
which  is  lost,  various  forms  are  issued  in  New  York.  The 
regular  New  York  receipt  for  graded  grain  stored  in  indi- 
vidual elevators  is  shown  in  Form  No.  11,  and  is  similar  to 
receipts  required  in  the  western  grain  states.  A  different  re- 
ceipt is  issued  when  graded  grain  is  delivered  into  a  '^system" 
of  two  or  more  elevators  operated  by  one  warehouse  concern. 
Such  a  receipt,  a  reproduction  of  which  is  shown  in  Form 
No.  12,  does  not  specify  the  particular  elevator  in  which  the 
grain  is  stored.  A  third  kind  of  warehouse  receipt  is  issued 
for  grain  store(?  in  the  transfer  elevators  owned  by  some  of 
the  railroads  centering  at  New  York.  This  receipt,  a  copy  of 
which  is  reproduced  in  Form  No.  13,  permits  delivery  afloat 
at  elevators'  option  and  is  issued  in  accordance  with  an  agree- 
ment between  the  New  York  Produce  Exchange  and  the  rail- 
roads. 

Federal  Regulation. — Elevators  used  in  connection  with 
the  interstate  transportation  of  grain  are  subject  to  control  by 
the  Interstate  Commerce  Commission.  In  practice  the  Com- 
mission has  confined  itself  mainly  to  the  prevention  of  undue 
discrimination  in  so-called  elevator  allowances,  which  the  rail- 
roads sometimes  pay  to  elevator  concerns  at  transfer  points 
for  the  transshipment  of  grain.  The  allowances  may  be  in 
the  form  of  so  much  per  bushel  or  one  hundred  pounds  of 
grain  handled,  of  a  lease  of  railroad  elevators  to  the  concerns 
free  of  charge  or  at  favorable  terms,  or  in  some  other  form. 
The  United  States  Supreme  Court  has  upheld  the  payment 
of  reasonable  allowances  for  services  rendered,  but  the  Inter- 
state Commerce  Commission  has  the  power  to  prevent  undue 
discrimination  in  the  payment  of  any  allowances  for  elevation, 
transfer,  mixing,  cleaning,  clipping,  drying,  weighing,  storage, 
^loading  out,''  or  other  interstate  elevator  service.^ 

Sources  of  Elevator  Profits. — The  income  of  the  terminal 
elevator  concerns  is  derived  from  different  sources.    As  public 

^See  222  U.  S.  42.  For  I.  C.  C.  decisions  sec  12  I.  C.  C.  Eep.  112, 
15  I.  C.  C.  Kep.  326,  17  I.  C.  C.  Rep.  192,  and  18  I.  C.  C.  Rep.  664. 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    79 


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warehousemen  they  are  paid  storage  charges,  the  maximum  of 
which  is  limited  by  the  states  or  by  the  grain  exchanges.  At 
Chicago,  for  example,  the  maximum  charges  are  1  cent  per 
bushel  for  the  first  ten  days  and  ^^  of  a  cent  per  day  there- 
after. Grain  stored  in  public  elevators  at  some  markets  may 
also  be  placed  into  separate  bins  upon  request  of  the  grain 
owner,  in  order  that  it  may  be  cleaned,  mixed,  dried  or  other- 
wise improved,  and  the  warehousemen  are  entitled  to  pay  for 
such  services.  The  income  from  this  latter  source  is  small, 
however,  because  grain  owners  seldom  avail  themselves  of  this 
privilege.  The  profits  of  the  warehousemen,  who  deal  in 
grain,  are  mainly  derived  from  the  sale,  storage  and  handling 
of  grain  which  is  owned  by  them.  As  grain  dealers  they  ob- 
tain a  profit  by  purchasing  grain  at  one  price  and  selling  it 
at  a  higher  price.  They  also  mix  grain  in  their  private  ele- 
vators or  in  private  bins,  so  as  to  raise  the  grade  of  a  part 
of.  the  poor  grades  of  grain  purchased  from  the  farmers  or 
country  dealers.  Grain  stored  in  elevators  is  subject  to  at 
least  two  inspections — an  ^^in-inspection"  at  the  time  it  is 
loaded  into  the  elevators,  and  an  "out-inspection"  at  the  time 
it  is  'loaded  out" — and  this  practice  enables  the  grain  deal- 
ers to  make  a  profit  by  mixing  the  grain  in  the  elevators. 

The  mixing  of  grain  under  conditions  of  fair  inspection 
and  grading  is  not  wholly  objectionable,  for  it  benefits  farmers 
and  dealers  alike  by  providing  a  market  for  the  lower  or  "off 
grades"  of  grain.  The  cleaning  and  drying  processes,  more- 
over, may  at  times  result  in  a  real  improvement  of  the  mixed 
grain.  It  is  objectionable,  however,  when  under  condi- 
tions of  careless  or  unfair  inspection  and  grading,  exorbitant 
profits  result.  It  is  objectionable,  also,  when  the  low  grades 
of  wheat  are  unfairly  scoured  so  that  "the  evidence  of  some 
of  its  imperfections,  such  as  sprouts,  mold  and  must,  are 
removed  or  disguised  and  unsound  wheat  is  made  to  appear 
better  than  it  really  is.  The  miller  prefers  to  have  the  grain 
come  to  him  in  its  natural  state,  so  that  he  can  more  readily 
see  the  character  of  the  wheat  that  he  is  buying."  ^    The  evils 

* '  *  Wheat  and  Flour  Prices  from  Farmer  to  Consumer, ' '  Bureau 
of  Labor  Statistics,  p.  32. 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    83 

of  unfair  mixing  are  gradually  diminishing  as  the  state  in- 
spection and  grading  at  the  primary  markets  is  being  im- 
proved. 

Profits  may  also  result  from  undue  "dockage"  in  weight 
to  cover  impurities  in  the  grain  purchased  from  farmer  or 
country  dealer.  Not  only  may  the  screenings  resulting  from 
cleaning  in  the  terminal  elevators  be  sold,  but  in  the  past  there 
have  been  instances  in  which  the  weight  of  grain  shipped  out 
of  a  primary  market  was  greater  than  that  of  the  grain  re- 
ceived. In  the  course  of  a  decade,  the  grain  shipments  out  of 
one  of  the  western  primary  markets  exceeded  the  receipts  by 
over  twenty-six  million  bushels.  The  evils  of  undue  dockage 
have  now  been  mainly  prevented,  for  dockage  at  present  is 
more  strictly  controlled  by  the  state  grain  inspectors  or  the 
grain  exchanges. 

There  are  many  banks  which  readily  accept  terminal  ele- 
vator receipts  accompanied  by  insurance  policies  or  certificates 
as  collateral  for  loans.  The  elevator  concerns  may,  therefore, 
by  storing  grain  which  they  own  in  their  terminal  elevators, 
obtain  funds  with  which  to  purchase  more  grain  and  in  that 
way  increase  their  profits  as  grain  dealers.  To  protect  these 
profits  against  loss  resulting  from  destruction  by  fire  they 
insure  the  grain.  To  protect  them  against  loss  resulting  from 
fluctuation  in  prices  they  "hedge"  in  the  speculative  market 
by  selling  future  contracts  to  cover  grain  which  they  have  on 
hand,  and  buying  future  contracts  to  cover  grain  which  they 
have  contracted  to  deliver  but  which  they  have  not  as  yet 
purchased.^ 


The  Purchase  and  Sale  of  Grain  at  the  Primary 

Markets 


Though  some  of  the  grain  shipped  to  the  primary  markets 
is  disposed  of  by  private  sale,  the  grain  trade  in  these  markets 
is  largely  conducted  in  accordance  with  the  trading  rules  of 
the  grain  exchange.    The  grain  consigned  to  the  primary  mar- 

*  For  discussion  of  hedging,  see  chap.  viL 


84 


AGRICULTURAL  COMMERCE 


kets  for  sale  may  be  sold  a  number  of  times  before  it  finally 
reaches  the  consumer.  It  is  sold  by  the  country  elevator  com- 
panies to  the  central  elevator  concerns  and  other  grain  job- 
bers or  dealers,  to  exporters,  or  to  consumers.  All  of  the 
grain,  except  that  sold  by  the  country  elevators  to  consumers, 
is  again  sold  by  the  central  elevator  concerns,  exporters  and 
other  grain  dealers.  Thereafter  it  may  be  repeatedly  sold,  for 
there  are  grain  dealers  and  speculators  who  buy  and  sell 
whenever  the  market  warrants,  or  seems  to  warrant  a  profit. 
The  negotiable  warehouse  receipts  of  the  terminal  elevators, 
which  represent  actual  grain  or  the  delivery  notices  which 
specify  warehouse  receipts  when  properly  indorsed  may 
change  hands  many  times  before  the  grain  is  shipped  out  of 
the  elevators. 

The  Purchase  of  Grain  from  Cauntry  Elevators. — The 
grain  shipped  to  the  primary  markets  by  line  elevator  com- 
panies is  mainly  sold  on  the  floor  of  the  grain  exchange  by 
their  own  representatives.  That  shipped  by  independent,  local 
dealers,  by  farmers'  cooperative  elevator  companies,  individual 
farmers  or  other  local  shippers  is  usually  sold  through  centraL 
commissionmen  who  also  do  most  of  their  selling  on  the  ex- 
change. The  commissionman  receives  a  commission  of  so 
much  per  bushel,  in  the  case  of  wheat,  rye  or  barley  1  cent, 
and  of  corn  or  oats  J  cent,  as  determined  by  the  grain  ex- 
change. His  chief  services  are  the  selling  of  the  grain  con- 
signed to  him  and  the  safeguarding  of  his  customers  in  all 
matters  incident  thereto,  such  as  inspection  and  grading, 
dockage,  weighing,  freight  charges,  switching,  storage  and  in- 
surance. He  also  is  a  means  of  supplying  country  elevators 
with  credit,  for  he  commonly  permits  them  to  draw  against 
him  for  as  much  as  90  per  cent,  of  the  value  of  the  grain  con- 
signed to  him.  The  country  dealers  do  this  by  attaching  to 
the  railroad  bills  of  lading,  drafts  drawn  on  the  commission- 
man,  and  depositing  them  in  country  banks.  Sometimes,  the 
commissionman  also  ^vances  funds  to'  country  elevator  con- 
cerns upon  an  open  account,  without  requiring  the  deposit  of 
collateral.  Having  sold  and  delivered  the  grain  consigned  to 
him,  the  commissionman  renders  an  Account  of  Sales  to  the 


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PRIMARY  AND  SEABOARD  GRAIN  MARKETS    85 


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AGRICULTUKAL  COMMERCE 


country  shipper,  Form  No.  14,  indicating  a  typical  account 
rendered  for  grain  sold  "on  track." 

The  grain  shipped  by  the  country  elevators  is  sold  by  using 
any  one  of  three  kinds  of  grain  contracts.  (1)  It  may  be  sold 
on  a  "to  arrive'^  contract,  i.  e.,  in  accordance  with  the  rules 
of  the  exchange  it  may  be  sold  before  it  has  actually  arrived 
at  the  primary  market.  The  country  shipper  obligates  him- 
self to  ship  sufficient  grain  within  fifteen  days  to  fill  the  con- 
tract which  was  previously  made.  (2)  It  may  be  disposed  of 
by  an  "on  track"  sale,  upon  its  arrival  in  the  primary  market. 
In  this  case  the  grain  is  sold  in  carlots  after  it  reaches  the 
primary  market,  the  cars  being  then  switched  to  the  terminal 
elevators  or  to  other  points  within  the  switching  limits  of  the 
market.  (3)  The  country  elevator  concern  may  choose  to 
store  its  grain  in  the  public  elevators  of  the  primary  market, 
with  a  view  to  obtaining  a  better  price  than  rules  at  the  time 
of  its  arrival.  When  the  owner  of  the  grain  directs,  it  is  sold 
"in  store,"  delivery  being  made  by  indorsing  to  the  purchaser 
the  negotiable  warehouse  receipt  which  was  issued  when  the 
grain  was  placed  in  the  elevator. 

The  grain  arriving  at  the  primary  markets  from  the  coun- 
try elevators  is  mainly  sold  to  the  terminal  elevator  companies, 
many  of  whom  are  grain  dealers.  It  is  also  sold  to  millers, 
especially  in  markets  where  the  milling  industry  is  im- 
portant, to  malsters  and  cereal  food  manufacturers,  to  central 
grain  dealers  who  are  not  warehousemen,  to  exporters,  and  in 
case  of  flaxseed,  to  linseed  oil  manufacturers. 

The  Sale  of  Grain  Stored  in  Terminal  Elevators. — The 
grain  which  is  stored  in  the  public  elevators  of  the  primary 
market  becomes  the  basis  of  a  continuous  grain  trade,  con- 
ducted under  the  rules  of  the  grain  exchange.  While  the 
stored  grain  does  not  leave  the  elevator  every  time  the  ware- 
house receipt  passes  from  one  dealer  to  another,  it  is  at  some 
time  sold  to  millers  or  other  consumers,  to  seaboard  grain 
dealers,  or  exporting  companies  located  either  at  primary  or 
seaboard  markets.  Terminal  elevator  concerns  may  also  be- 
come exporters  of  grain,  in  which  case  they  offer  the  grain  for 
sale  on  foreign  exchanges,  or  fill  orders  received  from  abroad- 


It 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    87 

The  methods  of  selling  the  grain  which  has  left  the  hands 
of  the  country  shippers  and  is  stored  in  the  terminal  elevators 
at  the  primary  markets  are  various.  (1)  It  may  be  sold 
through  brokers  on  the  exchanges  in  the  primary  markets, 
upon  payment  of  prescribed  brokerage  commission  charges. 
Such  sales  may  be  made  for  immediate  or  future  delivery,  and 
they  may  be  made  by  sample,  by  grade,  or  by  sample  and 

grade  combined. 

(2)  The  grain  stored  in  elevators  in  the  primary  markets 
may  be  sold  on  the  seaboard  exchanges.  The  terminal  ele- 
vator companies  have  certain  brokers  representing  them  in  the 
seaboard  markets,  the  brokers  being  supplied  with  samples  of 
the  standard  grade  of  wheat,  corn  and  other  grains  which 
they  are  instructed  to  sell.  The  brokers  in  this  way  sell  some 
of  the  grain  placed  at  their  disposal  to  millers  who  are  repre- 
sented on  the  port  exchanges,  but  more  of  it  to  eastern  dis- 
tributing and  exporting  grain  dealers.  The  dealers  who  dis- 
tribute grain  throughout  the  East  and  who  obtain  most  of 
their  supply  in  this  way,  sell  the  grain  mainly  to  millers  and 
to  local  grain  and  feed  concerns  by  means  of  salesmen  and 
mailing  cards.  They  usually  sell  the  grain  in  transit  and 
then  reconsign  the  cars  to  the  buyers  from  the  railroad  recon- 
signment  points  to  which  the  carloads  of  grain  had  originally 

been  shipped. 

The  eastern  grain  exporters,  who  also  obtain  most  of  their 
supply  from  the  terminal  elevators  of  the  primary  markets, 
fill  foreign  orders  or  sell  their  grain  through  brokers  on  the 
exchanges  of  the  leading  British  and  Continental  European 
grain  markets.  Having  received  notice  of  acceptance,  they 
contract  for  ocean  freight  with  steamship  lines  or  chartered 
ocean  carriers,  and  at  the  time  of  shipment  they  contract  for 
marine  insurance  to  protect  the  grain  which  they  are  export- 
ing. 

(3)  Grain  which  is  exported  directly  from  the  primary 
markets  by  the  terminal  elevator  concerns  or  by  exporting 
companies  is  sold  through  brokers  on  the  European  exchanges 
in  the  same  way  that  the  grain  exported  by  eastern  dealers 
is  sold.    A  primary  market  exporter  may  arrange  on  a  com- 


88 


AGRICULTUEAL  COMMERCE 


ill 


mission  basis  to  have  a  seaboard  exporter  insure  and  store  his 
grain  awaiting  shipment,  contract  for  ocean  freight  and 
marine  insurance  and  otherwise  see  that  the  grain  is  properly 
forwarded.^  There  are  also  regular  forwarding  agents  at  the 
ocean  ports  who,  upon  payment  of  a  commission,  will  see  that 
his  grain  is  forwarded  to  destination,  or  he  may  have  a 
salaried  representative  at  the  port  through  which  he  ordinarily 

exports. 

(4)  Some  grain  is  also  sold  privately  in  the  central  mar- 
kets. 

Factors  Influencing  Grain  Prices 

Since  the  great  volume  of  the  available  grain  of  the  IJnited 
States  is  concentrated  at  the  primary  markets  of  the  interior, 
the  prices  paid  at  those  markets  determine  the  prices  paid  at 
the  thousands  of  country  grain  markets,  at  the  seaboard  mar- 
kets, or  at  any  of  the  interior  markets  to  which  the  grain  is 
shipped  for  final  consumption. 

The  prices  paid  to  the  farmers  at  the  local  markets  do  not 
in  every  instance  follow  the  primary  market  with  minute  pre- 
cision. They  do  not  fluctuate  as  frequently  during  the  course 
of  a  day  as  do  the  primary  market  prices;  neither  are  the 
price  margins  which  the  local  buyers  allow  themselves  every- 
where identical.  The  country  prices  follow  the  primary  mar- 
ket prices  more  closely,  and  the  difference  between  them  is 
narrower  at  local  markets  where  several  buyers  compete  than 
at  non-competitive  points.  Usually,  however,  the  country 
price  is  lower  than  the  primary  market  price  by  the  amount 
of  the  freight  charges  from  the  local  to  primary  market,  and 
a  price  margin  of  a  given  number  of  cents  per  bushel,  which 
the  country  buyer  deducts  to  cover  elevator  expenses  and  yield 

a  profit.^ 

The  direct  influence  of  the  growers  ordinarily  affects  the 
price  which  they  receive  at  particular  local  markets  only  in 

*S.  Harris:    ** Methods  of  Marketing  the  Grain  Crop,''  The  An- 
nals of  the  American  Academy  of  Political  and  Social  Science,  Sept., 

1911,  p.  57. 

'  For  price  margins  see  chap,  iii,  pp.  39,  40,  41. 


A  PRIMARY  AND  SEABOARD  GRAIN  MARKETS    89 

■   \  ^ 

so  far  as  they  may  depress  the  price  margin  which  the  local 
buyers  deduct  from  the  primary  market  price,  by  withholding 
their  grain  or  by  organizing  a  cooperative  elevator.  If  a  great 
number  of  growers  systematically  withheld  their  grain  at 
many  local  markets,  their  action  would  affect  the  price  level 
at  the  primary  markets,  but  thus  far  most  of  the  growers  have 
not  stored  the  bulk  of  their  grain  longer  than  three  months 
after  the  harvesting  season,  and  their  cooperative  companies 
have  never  been  able  to  dictate  primary  market  prices.  The 
growers,  however,  exert  an  indirect  influence  upon  the  price 
paid  at  the  primary  markets,  in  that  the  cost  of  producing 
grain,  the  cost  of  hauling  it  to  the  country  elevator,  and  their 
profits  affect  the  supply  of  grain  which  in  the  long  run 
is  produced.  Unless  the  primary  market  price  is  such  as 
to  permit  the  payment  of  a  country  price  sufficiently  high  to 
yield  a  reasonable  profit,  the  farmers  will  produce  less  grain, 
and  the  resulting  decline  in  the  supply  will  inevitably  force 
up  the  entire  level  of  grain  prices. 

The  prices  paid  at  the  seaboard  and  interior  markets 
to  which  grain  is  shipped  from  the  primary  markets  are  also 
based  principally  upon  the  primary  market  prices.  As  the 
country  prices  are  lower,  so  the  seaboard  prices  are  higher 
than  the  prices  paid  at  the  primary  markets  by  the  amount 
of  the  freight  rates  ^  to  tidewater  plus  certain  additional  sums 
per  bushel  to  cover  handling  expenses  and  the  eastern  grain 
dealer's  trade  profit.  Thus  when  No.  2  red  winter  wheat, 
during  March,  1914,  sold  at  from  92J  to  96|  cents  per  bushel 
in  store  at  Chicago  it  sold  at  from  105  to  106  per  bushel 
f.  0.  b.  afloat  at  New  York.  The  tidewater  prices  do  not 
fluctuate  with  the  primary  market  prices  with  exact  precision, 
for  seaboard  markets  also  have  elevators  which  may  be  filled 
with  grain,  and  exchanges  where  prices  may  be  temporarily 
manipulated.  The  seaboard  markets  being  more  closely  de- 
pendent upon  the  export  trade,  moreover,  are  influenced  by 
the  prices  paid  on  the  leading  European  exchanges  to  a  greater 
extent  than  are  the  primary  markets  of  the  interior. 

Primary  market  prices  are  determined  largely  by  condi- 

^For  freight  rates,  see  p.  59. 


90 


AGRICULTURAL  COMMERCE 


tions  of  supply  and  demand.  When  the  supply  of  grain  is 
relatively  large  the  price  level  is  low,  and  when  the  reverse 
condition  prevails  the  price  level  is  high.  The  price  deter- 
mining supply  is  not  the  supply  available  at  any  particular 
primary  market,  not  that  available  at  all  the  primary  mar- 
kets, nor  even  that  of  the  whole  United  States,  for  the  grain 
market  is  a  world's  market  and  the  prices  paid  at  the  primary 
markets  are  influenced  to  some  extent  by  the  grain  crops  of 
the  world.  The  term  supply,  moreover,  includes  different 
conceptions,  all  of  which  influence  the  price  level.  The  actual 
supply  is,  of  course,  that  portion  of  the  crop  which  leaves  the 
farmer  and  enters  the  grain  trade.  But  prices  are  influenced 
during  and  after  the  harvesting  seasons  by  the  total  produc- 
tion of  grain ;  after  the  harvesting  seasons  by  the  visible  sup- 
ply— the  amount  of  grain  in  elevators,  warehouses,  railroad 
cars,  vessels  and  other  places  where  it  is  available  for  trad- 
ing purposes;  during  the  planting  season  by  the  acreage 
planted ;  and  during  the  growing  season  by  the  reported  con- 
dition of  the  crops.  Conditions  of  frost,  drought,  floods, 
rainfall,  grain  pests,  the  opening  of  new  farming  regions,  the 
use  of  fertilizers,  land  values,  the  rotation  of  crops  and  the 
relative  use  of  land  for  different  varieties  of  grain,  for  live- 
stock, dairy  farming  or  other  purposes,  and,  until  the  enact- 
ment of  the  tariff  act  of  October,  1913,  the  import  duties  on 
grain  and  flour,  were  considerations  of  supply.  ^ 

The  place  where  the  various  conditions  of  supply  are  con- 
sidered is  on  the  great  grain  exchanges.  Indeed,  it  may  be 
said  that  grain  prices  are  determined  at  the  primary  markets 
only  partly  in  accordance  with  the  actual  supply  of  grain  ex- 
isting at  any  particular  time.  They  are  determined  largely  in 
accordance  with  the  judgment  of  the  hundreds  of  buyers  and 
sellers  of  grain  trading  on  the  grain  exchanges,  as  to  how 
large  the  yield  of  the  coming  crop  will  be.  There  is  prac- 
tically always  an  element  of  the  future  in  the  determination 
of  grain  prices. 

It  is  also  on  the  exchanges  of  the  primary  markets  that 
the  demand  for  grain  takes  concrete  form.  The  price-deter- 
mining demand   is,   likewise,  one  that  is  nation-wide  and 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    91 

world-wide,  and  it  is  affected  by  many  considerations  such  as 
the  condition  of  the  money  market,  the  state  of  business  pros- 
perity, the  growth  of  population,  the  shift  of  population  from 
country  to  city,  the  import  tariffs  of  foreign  countries,  con- 
ditions of  war  or  peace,  and  the  degree  of  competition  or  com- 
bination existing  within  and  between  the  primary  markets. 

There  are  other  considerations  besides  supply  and  demand 
which  influence  primary  market  prices.    The  relative  prices 
at  the  different  markets  are  influenced  to  some  extent  by  the 
cost  of  transporting  the  grain  to  the  seaboard  and  to  other  in- 
terior and  foreign  markets.    It  is  partly  because  of  differences 
in  the  freight  rates  to  the  seaboard  that  when  on  July  3, 1914, 
No.  2  red  winter  wheat  sold  at  SIJ  to  82  cents  per  bushel  in 
Chicago,  the  price  in  St.  Louis  was  77^  to  78J  cents  and  in 
Kansas  City  74 J.    Prices  are  influenced  also  by  conditions  of 
quality,  for  they  are  regularly  quoted  in  terms  of  varieties 
and  grades.    The  marketing  and  carrying  costs  also  influence 
the  prices  paid  at  the  primary  markets,  i.  e.,  the  charges  for 
storage,  weighing,  grading,  inspection,  etc.    While  individual 
dealers  cannot  obtain  higher  prices  than  their  competitors 
because  their  marketing  and  carrying  costs  are  higher,  the 
prices  paid  in  particular  primary  markets  and  in  all  the  pri- 
mary markets  combined  must  be  sufficient  to  cover  costs  and 
yield  a  profit.    Grain  prices  are  also  influenced  by  forces  such 
as  the  volume  of  gold  production,  the  extensive  use  of  credit 
instruments,  the  conditions  of  the  money  market,  and  the 
state  of  business  prosperity.    These  are  forces  which  influence 
prices  generally  and  are  not  peculiar  to  grain,^  except  that  the 
last-mentioned  factor  influences  grain  prices  less  than  the 
prices  of  cotton,  crude  minerals  and  other  industrial  materials, 
or  of  most  manufactured  commodities. 

Grain  prices  are  at  times  subject  to  manipulation  on  the 
exchanges,  but  so  large  is  the  volume  of  grain  annually  bought 
and  sold,  and  so  extensive  is  the  competition  between  the  pri- 
mary markets,  that  the  effects  of  any  artificial  manipulation 
which  is  not  in  accord  with  fundamental  conditions  of  supply 
and  demand  can  only  be  temporary.    In  one  sense  all  grain 

^See  chap.  xvii. 


(I 


92 


AGKICULTUKAL  COMMERCE 


prices  are  the  products  of  manipulation  because  they  are  con- 
stantly being  adjusted  to  the  level  which  in  the  judgment  of 
the  grain  trade  is  warranted  by  the  future  crop.  Manipula- 
tion, in  the  narrower  sense,  however,  has  but  temporary  effects 
on  the  price  of  grain.  The  relation  between  speculation  and 
grain  prices  is  fully  discussed  in  Chapter  VII. 

All  of  the  various  price  factors  are,  in  their  present  and 
future  aspects,  considered  on  the  grain  exchanges.  The  com- 
bined judgment  of  the  multitude  of  buyers  and  sellers  who 
transact  business  on  the  exchanges  determines  the  price  of 
grain  paid  in  the  primary  markets. 

The  inspection  and  grading  of  grain,  the  relations  between 
the  speculative  exchanges  and  the  sale  of  grain,  and  the 
financing  of  grain  crops  and  movements,  since  they  are  sub- 
jects which  are  not  confined  to  the  grain  trade,  are  discussed 
in  subsequent  chapters. 

BIBLIOGRAPHY 

Chicago  Board  of  Trade,  Annual  Report  of  the  Trade  and 

Commerce  of  Chicago,  1913  (1914). 
♦Coulter,  J.  L.    Cooperation  Among  the  Farmers  (1911). 
Day,  W.  a.    "Modem  Grain  Storage  Centers,"  Cassier's  Maga- 
zine (Nov.,  1912),  Vol.  xlii,  p.  379. 
*DoNDLiNGER,  P.  T.    The  Book  of  Wheat  (1908). 
*DUNN,  S.  O.    "Grain  Handling  in  the  United  States,"  Railway 

Age  Gazette  (June  4  and  11,  1909). 
Edgar,  W.  C.    Story  of  a  Grain  of  Wheat  (1904). 
♦Harris,  S.     "Methods  of  Marketing  the  Grain  Crop,"  The 

Annals  of  the  American  Academy  of  Political  and  Social 

Science  (Sept.,  1911),  pp.  36-57. 
*PowELL,  G.  H.     Cooperation  in  Agriculture  (1913),  chap.  7. 
Smith,  R.  E.    Wheat  Fields  and  Markets  of  the  World  (1908). 
*Weld,  L.  D.  H.    Statistics  of  Cooperation  Among  Farmers  in 

Minnesota,    1913,    Minnesota    Agricultural    Experiment 

Station,  Bulletin  No.  146  (1914). 
Studies  in  the  Marketing  of  Farm  Products,  University 

of  Minnesota  Studies  in  the  Social  Sciences,  No.  4  (Feb. 

1915). 
New  York  Mayor's  Market  Commission:    Report  (1913),  Ap- 
pendix 12. 


PRIMARY  AND  SEABOARD  GRAIN  MARKETS    93 

New  York  Produce  Exchange :    Annual  Report  for  1913. 

^Annual  Statistical  Report  for  1913. 

*State  Board  of  Agriculture  of  Missouri:  Annual  Report  for 
1913,  pp.  112-127. 

United  States  Bureau  of  Corporations:  Transportation  by 
Water  in  the  United  States  (1909),  Part  II,  chaps.  6 
and  7. 

•United  States  Bureau  of  Crop  Estimates  (Department  of  Agri- 
culture) :  The  Agricultural  Outlook  (formerly  The  Crop 
Reporter)  issued  currently  as  Farmers'  Bulletins.  In 
May,  1915,  title  was  changed  to  The  Monthly  Crop 
Report. 

* ^Wagon  Hauls  for  Farm  Products,  Farmers'  Bulletin  No. 

672  (April  23,  1915). 

United  States  Bureau  of  Foreign  and  Domestic  Commerce: 
Statistical  Abstract  of  the  United  States,  1913   (1914). 

*United  States  Bureau  of  Labor  Statistics:  Wheat  and  Flour 
Prices  from  Farmer  to  Consumer  (1914),  Bulletin  No. 
130. 

*United  States  Bureau  of  Statistics  (Department  of  Agricul- 
ture) :  Cost  of  Hauling  Crops  from  Farm  to  Shipping 
Points,  BuUetin  No.  49  (1907). 

* Grain  Movements  in  the  Great  Lakes  Region,  Bulletin 

No.  81  (1910). 
-Marketing  Grain  and  Livestock  in  the  Pacific  Coast 


Region,  Bulletin  No.  89  (1911). 
Methods  and  Routes  for  Exporting  Farm  Products,  Bul- 
letin No.  29  (1904). 

♦ Oats  Crop  of  the  United  States,  1866-1906,  Bulletin  No. 

68  (1907). 

♦ Wheat  Crops  of  the  United  States,  1866-1906,  Bulletin 

No.  57  (1907). 

United  States  Census  Office:    Thirteenth  U.  S.  Census  Report, 
Agriculture,  1910,  Yol.  5  (1913). 

*United  States  Industrial  Commission:    Distribution  and  Mar- 
keting of  Farm  Products,  Part  2  (1901). 

United  States  Monthly  Consular  and  Trade  Reports   (Sept., 
1909),  The  Grain  Trade  of  Germany  (1909),  pp.  144-7. 

*United  States  Monthly  Summary  of  Commerce  and  Finance 
(December  issue  for  years  1905-1911). 
See' also  Bibliography  on  Grain  Exchanges,  pp.  162,  163. 

•References  designated  by  *  apply  also  to  chap.  iii. 


il 


I 


THE  LOCAL  COTTON  MAKKET 


95 


CHAPTER   V 
THE  LOCAL  COTTON  MARKET 

The  local  cotton  trade  affords  a  second  example  of  how  a 
farm  product  produced  over  wide  areas  by  thousands  of  grow- 
ers is  sold  by  the  producers  and  begins  its  journey  to  its  con- 
sumers. The  cotton  crop  of  the  United  States  is  produced 
by  about  1,700,000  growers,  ginned  by  25,000  ginneries,  stored 
at  2,600  public  storage  places,  consumed  by  2,100  consuming 
establishments,  and  is  handled  by  many  transportation  con- 
cerns, local  buyers,  merchants,  factors,  exporting  houses  and 
brokers.^  The  methods  of  purchasing  the  cotton  crop  from 
the  growers,  owing  to  differences  in  the  nature  of  the  com- 
modity, the  weaker  financial  condition  of  many  of  the  growers, 
the  greater  importance  of  the  foreign  market,  the  location  of 
many  cotton  mills  in  some  of  the  growing  districts,  and  to 
trade  custom,  differ  somewhat  from  those  described  in  connec- 
tion with  the  grain  trade. 

The  Cotton-geowing  Belt 

While  the  area  of  the  cotton-growing  region  is  smaller 
than  that  of  various  grain-producing  districts,  it  has  been 
gradually  extended  westward  from  the  Carolina  seaboards  to 
western  Texas  and  Oklahoma.  It  includes  the  region  south  of 
an  irregular  line  drawn  from  southeastern  Virginia  through 
the  western  part  of  North  Carolina,  the  southern  part  of  Ten- 
nessee and  Missouri,  the  northern  part  of  Oklahoma  and  the 
southeastern  part  of  New  Mexico,  a  distance  of  1,500  miles  in 
length  and  500  miles  in  width  (See  Map  No.  VI).  Small 
quantities  of  cotton  have  also  in  recent  years  been  grown  on 

*U.  S.  Census:  Cotton  Production  1913,  Bulletin  No.  125,  p.  64. 

94 


I 


the  irrigated  lands  of  Arizona  and  California.  The  total  cot- 
ton acreage  of  the  United  States  has  in  the  past  few  years 
ranged  from  34,250,000  to  nearly  37,500,000  ^  acres. 

The  total  cotton  crop  as  reported  by  the  United  States 
Census  Office  has  in  recent  years  ranged  from  a  minimum  of 
10,462,000  running  bales  in  the  season  1909-1910  to  a  maxi- 
mum of  16,109,000  in  the  season  1911-1912.2  In  the  latest 
crop  season  (1913-1914)  for  which  details  are  now  available, 
Texas  produced  over  28  per  cent,  of  the  total  crop  of  the 
United  States,  Georgia  16  per  cent.,  and  the  other  important 
cotton-producing  states  in  the  relative  order  of  their  crops 
were  Alabama,  South  Carolina,  Mississippi,  Arkansas,  Okla- 
homa, North  Carolina,  Louisiana  and  Tennessee.  The  total 
crop  of  the  season,  including  linters,  aggregated  14,614,000 
running  bales.^ 

Commercial  and  Geographical  Classification.— The  cotton 
belt  and  crop  may  be  variously  classified  from  the  standpoint 
of  geographical  location  and  varieties  of  cotton  produced.  In 
the  broadest  sense  the  United  States  produces  two  general 
varieties  of  cotton:  (1)  sea-island  cotton,  the  growth  of  which 
is  confined  to  limited  areas  near  the  coast  of  South  Carolina, 
Georgia,  and  Florida  and  to  adjacent  islands,  and  (2)  upland 
cotton,  which  is  grown  throughout  the  remainder  of  the  cot- 
ton belt.  The  former  yields  a  fine,  strong,  silky  staple  or 
fiber  from  IJ  to  2 J  inches  *  in  length.  Having  a  fiber  exceed- 
ing IJ  inches  average  length,  it  is  distinctly  America's  long 
staple  cotton,  and  is  used  for  the  making  of  the  finest  grades 
of  yarn,  cloth  and  lace,  for  mercerizing,  for  mixing  with  silk, 
and  for  other  purposes  requiring  a  fine  variety  of  cotton. 
Since  the  average  crop  of  sea-island  cotton  is  the  equivalent  of 
but  75,000  bales  of  500  pounds  each,  25,000  bales  of  which  are 
ordinarily  exported,  American  cotton  mills  have  been  obliged 
to  use  certain  varieties  of  long-staple  upland  cotton  for  the 

'  U.  S.  Bureau  of  Statistics  (Dept.  of  Agriculture) :     The  Agri- 
cultural Outlook,  May  22,  1914,  p.  13. 

'Round  bales  counted  as  half -bales,  U.  S.  Census  BuUetin  No 
116  (1912),  p.  24. 

»  U.  S.  Census  Bulletin  No.  125,  p.  9. 

*U.  8.  Tariff  Board,  Cotton  Manufactures  vol.  i,  p.  26. 


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THE  LOCAL  COTTON  MARKET 


97 


06 


same  purposes,  and  also  to  import  long-staple  cotton  from 
Egypt.  Upland  cotton  comprises  over  99  per  cent,  of  the 
entire  cotton  crop  of  the  United  States.  Its  staple  is  on  the 
whole  somewhat  coarser  and  its  length  varies  from  |  to  1^ 
inches. 

Botanically  there  are  a  great  many  varieties  of  upland 
cotton,  varying  in  productiveness,  time  of  maturity,  size  of 
boll,  length,  strength,  fineness  and  color  of  staple,  ability  to 
resist  wind  and  rainstorms,  appearance  of  the  plant,  and  in 
other  respects.  The  United  States  Department  of  Agriculture 
has  classed  the  different  varieties  of  upland  cotton  into  eight 
groups  or  divisions— big-boll,  long-staple  cluster,  semicluster, 
early  or  short  limb,  Peterkin  or  Rio  Grande,  and  intermediate 
types — and  under  each  group  there  are  many  varieties.^ 

Commercially,  all  varieties  of  American  upland  cotton  are 
bought  and  sold,  on  the  great  speculative  exchanges,  as  "up- 
land" cotton.  In  the  spot  markets  of  the  South,  however,  and 
among  cotton  merchants  and  spinners,  upland  cotton  is  vari- 
ously subdivided  into  additional  classes  or  types : 

(1)  Thus  in  the  narrower  sense  "Atlantic  upland"  cotton 
is  produced  in  the  eastern  cotton  states,— North  and  South 
Carolina,  Georgia,  Florida,  Virginia,  and  parts  of  Alabama 
and  Tennessee.  It  is  the  "short  staple"  cotton  of  the  United 
States,  its  floss  varying  from  |  to  1  inch  in  length.  (2) 
"Gulf"  or  "Western"  cotton  is  grown  in  the  basin  of  the  Mis- 
sissippi River  and  in  the  Gulf  cotton  states.  (3)  "Texas"  cot- 
ton is  produced  in  Texas  and  Oklahoma.  Both  Gulf  and 
Texas  cottons,  which  are  frequently  grown  in  the  same 
regions,  have  a  staple  of  from  1  to  1^\— usually  l^V  inches— 
in  length.  (4)  Certain  medium  long-staple  cottons  most  of 
which  are  known  as  "benders,"  "rivers,"  "peelers,"  "creeks," 
or  "quarter"  cottons  are  grown  in  the  bends  of,  or  near  the, 
Mississippi,  Arkansas,  White  and  Red  rivers  in  Mississippi, 
Louisiana  and  Arkansas,  mainly  on  a  strip  of  land  about  75 
miles  wide  and  200  miles  long  locally  known  as  the  Mississippi 
Deltas.    The  length  of  the  staple  of  these  cottons  varies  from 

*  See  *  *  Varieties  of  American  Upland  Cotton, ' '  Bureau  of  Plant . 
Industry,  Bulletin  No.  163. 


98 


AGRICULTUKAL  COMMERCE 


lyVto  li  inches  and  averages  about  IJ  inches.*  Small  quanti- 
ties of  long-staple  upland  cotton  are  also  produced  in  various 
counties  of  Tennessee,  Texas,  Georgia  and  the  Carolinas.  It 
is  estimated  that  in  1914  the  total  crop  of  long-staple  cotton, 
other  than  sea-island,  somewhat  exceeded  400,000  bales  of  lyV 
inch  cotton  or  1,000,000  bales  of  IJ  inch  cotton.^  There  are 
no  sharply  defined  geographical  limits  within  which  the  vari- 
ous types  of  upland  cotton  are  grown.  It  is  for  this  reason 
that  the  various  cotton  regions  are  not  sharply  defined  in  the 
accompanying  map  (No.  VI).  Ordinarily  about  50  per  cent, 
of  the  upland  cotton  consists  of  "Atlantic  upland,"  45  per 
cent.  "Gulf  and  "Texas/'  and  5  per  cent,  of  long-staple  varie- 
ties or  types.^ 

In  addition  to  sea-island  and  the  various  types  of  upland 
cotton,  from  three  to  six  hundred  thousand  bales  of  so-called 
"linters"  are  annually  marketed.  Linters  is  the  short  fiber 
obtained  by  reginning  cottonseed  before  the  oil  is  extracted  in 
the  cottonseed  oil  mills.  It  is  used  in  upholstering,  in  manu- 
facturing mattresses,  comforts,  batting,  felts,  cushions,  wad- 
ding, pads,  absorbent  cotton,  guncotton,  niter  powder  and 
writing  paper,  and  when  mixed  with  shoddy  it  is  used  in 
making  low-grade  yarns,  wrapping  twine,  rope,  and  lamp-  and 

candle-wicks.* 

World's  Production  of  Cotton. — The  cotton  belt  of  the 
United  States  produces  over  60  per  cent,  of  the  world's  cotton 
crop  available  for  mill  consumption.  The  cotton  grown  in 
India  and  China,  two  of  the  heaviest  foreign  producing  coun- 
tries, consists  mostly  of  coarse  short-staple  varieties.    That  of 

»U.  S.  Census  Bulletin  No.  116,  p.  18;  U.  S.  Bureau  of  Plant 
Industry,  Bulletin  No.  163,  p.  33;  A.  E.  Marsh:  ** Cotton  Exchanges 
and  Their  Economic  Functions,"  The  Annals  of  the  American  Acad- 
emy of  Political  and  Social  Science,  Sept.,  1911,  p.  265;  U.  S.  Bureau 
of  Plant  Industry:    Farmers'  Bulletin  No.  591,  p.  16. 

*U.  S.  Bureau  of  Crop  Estimates:  The  Agricultural  OutlooTc, 
Feb.  6,  1915,  Farmers'  Bulletin  No.  651,  p.  13. 

■A.  K.  Marsh:  ** Cotton  Exchanges  and  Their  Economic  Func- 
tions," The  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  Sept.,  1911,  p.  265. 

** 'Supply  and  Distribution  of  Cotton"  (1913),  U.  S.  Census  Bul- 
letin No.  117,  p.  14. 


THE  LOCAL  COTTON  MAEKET 


99 


Egypt  is  of  excellent  quality,  but  scarcely  begins  to  satisfy  the 
demand  of  the  world's  cotton  mills  for  high-grade  long-staple 
cotton.  The  remainder  of  the  world's  crop  available  for  mill 
consumption  is  widely  scattered  from  Eussia,  Turkey  and 
Persia,  to  Mexico,  South  American  countries,  the  West  Indies 
and  colonial  Africa.  The  close  dependence  of  British  and 
European  cotton  mills  upon  the  American  crop  has  caused 
various  British,  German,  French,  Belgian,  Dutch,  Portuguese, 
Spanish  and  Italian  associations  and  organizations  to  promote 
the  culture  of  cotton  in  the  colonies  of  their  respective  coun- 
tries and  elsewhere.  The  annual  crop  of  colonial  cotton  has, 
indeed,  grown  from  63,473  bales  in  1905  to  102,890  in  1912.^ 
The  relative  importance  of  the  American  cotton  crop,  however, 
may  not  be  measured  solely  by  its  volume;  the  poor  quality 
of  the  cotton  grown  in  some  of  the  principal  foreign  cotton- 
producing  countries  still  obliges  the  manufacturers  of  the  finer 

TABLE  VI 

World's  Production  of  Cotton  for  Mill  Consumption* 
(Jn  hales  of  500  pounds  net  weight) 


Country 

1905-6 

1910-11 

1911-12 

1913-14 

Per  Cent, 
of  Total 
1913-14 

United  States 

India 

Egypt 

China 

Russia 

Brazil 

Mexico 

Peru 

Persia 

Turkey 

Others 

10,340,000 

2,519,000 

1,181,000 

415,000 

585,000 

258,000 

125,000 

55,000 

47,000 

107,000 

100,000 

11,104,000 

2,722,000 

1,506,000 

775,000 

981,000 

280,000 

147,000 

95,000 

117,000 

105,000 

195,000 

15,013,000 
2,270,000 
1,463,000 
625,000 
939,000 
275,000 
130,000 
100,000 
120,000 
124,000 
210,000 

13,545,000 

3,801,000 

1,470,000 

1,200,000 

1,004,000 

420,000 

150,000 

110,000 

140,000 

130,000 

285,000 

60.9 

17.1 

6.6 

5.4 

4.5 

1.9 

.6 

.5 

.6 

.6 

1.3 

Total 

15,732,000 

18,027,000 

21,269,000 

22,255,000 

100.00 

*  U.  S.  Census  Bulletin.^No.  125,  p.  57. 


*  Bureau  of  Statistics  (Department  of  Agriculture):     The  Agri- 
cultural Outloolc,  Mar.  18,  1914,  p.  42. 


I 


100 


AGmCtTLTURAL  COMMERCE 


grades  of  yarn  and  cloth  in  Europe  to  import  the  bulk  of 
their  supply  from  the  American  cotton  belt. 

The  Tx)cal  Handling  and  Shipment  of  Cotton  by    • 

Growers 

Ginning  and  Baling. — Ordinarily  the  first  step  in  the 
marketing  of  cotton   is  to  haul  it  from  the  farms  to  the 
gin.     Growers  who  have  obtained  advances  from  local  mer- 
chants or  other  persons,  with  the  growing  cotton  as  security, 
are  sometimes  required  to  haul  the  picked  cotton,  before  it  is 
ginned,  to  the  scales  of  these  merchants  to  have  it  weighed, 
and  obtain  credit  at  the  market  value.     In  any  event,  how- 
ever, the  "seed-cotton"— cotton  with  lint  attached  to  seeds- 
is  taken  to  some  one  of  the  25,000  ginneries  to  have  the 
seeds   removed    and   the   lint   baled.      Usually    about   two- 
thirds  of  the  weight  of  seed-cotton  comprises  seed  and  one- 
third  lint.    Eli  Whitney,  by  the  invention  of  the  cotton  gin 
and   subsequent   inventors  by  its   improvement,   made  pos- 
sible the  development  of  the  cotton  industry  to  its  present 
vast  proportions,  for  the  gin  has  completely  displaced  the  old 
hand  method  of  separating  the  seed  from  the  lint.    Gmnmg 
has  undergone  great  changes  and  improvements  since  the  con- 
struction, in  1793,  of  the  first  gin  suitable  for  upland  cotton. 
Mechanically,  the  gin  has  developed  from  the  hand  gin,  which 
daily  ginned  half  a  modern  bale  per  man,  to  the  old  planta- 
tion gin  which  increased  the  quantity  to  several  bales,  and 
then  to  the  centralized  high-power  gin  which  commonly  gins 
and  bales  from  50  to  75  bales  daily  and  in  some  cases  as  much 
as  250  bales  in  a  day.^    Two  main  types  of  gin  are  in  use  at 
present :    the  roller  gin  and  the  saw  gin.    The  former,  which 
was  in  use  long  before  the  Whitney  saw  gin  was  invented,  is 
used  for  ginning  sea-island  cotton,  the  seeds  of  which  are  loose 
in  the  lint.    The  latter  is  used  to  gin  upland  cotton,  the  seeds 
of  which  are  removed  only  with  difficulty.    It  consists  of  a 
series  of  saws  attached  to  revolving  cylinders,  which  draw  the 
lint  through  the  openings  or  slits  of  steel  plates. 

»C.  W.  Burkett  and  C.  H.  Poe:   Cotton,  p.  221. 


THE  LOCAL  COTTON  MARKET 


101 


The  management  of  the  gins  has  also  undergone  changes. 
The  original  hand  gins  were  operated  on  the  farms,  and  when 
power  gins  came  into  use  each  large  plantation  continued  to 
operate  its  own  plant.  The  cost  of  purchasing,  operating, 
and  repairing  power  gins  which  were  used  but  a  small  part 
of  the  season,  proved  to  be  too  expensive  for  the  smaller  farms 
into  which  most  of  the  large  plantations  were  broken,  and  the 
plantation  gins  were  largely  displaced  by  high-power  central 
ginneries.  Most  of  the  growers  now  take  their  seed-cotton 
to  large  well-equipped  stationary  ginneries  and  pay  the  opera- 
tors for  their  ginning  and  baling  services.  Some  of  the  large 
plantations,  however,  which  are  owned  by  individuals,  cor- 
porations or  syndicates  are  equipped  with  power  gins  of  their 
own. 

The  large  ginneries  are  frequently  unable  to  gin  and  bale 
all  the  cotton  immediately  after  it  is  received  by  them.  They 
therefore  issue  "gin  tickets"  against  the  production  of  which 
they  will  eventually  deliver  the  baled  cotton.  These  tickets 
are  frequently  accepted  by  local  banks  as  the  basis  for  the 
advance  of  funds  to  cotton  buyers.^ 

The  ginneries  pack  the  lint  cotton  into  loose  rough  bales. 
The  usual  "square"  gin  bale  of  upland  cotton  known  as  the 
"flat"  or  "plantation"  bale  has  dimensions  of  about  54  by  27 
by  36  inches  and  a  gross  weight  of  about  500  pounds.  Some 
upland  cotton  is  also  baled  into  "round"  bales  which  are  about 
3  feet  long,  20  inches  in  diameter,  and  weigh  about  250 
pounds.  In  the  season  of  1912-1913,  round  bales  of  upland 
cotton  which  are  commonly  counted  as  half -bales,  comprised 
but  81,528  as  compared  with  13,373,998  square  bales.  Sea- 
island  cotton  is  usually  packed  into  bales  80  inches  long,  hav- 
ing a  diameter  of  32  inches  and  weighing  about  390  pounds.* 
The  average  gross  weight  of  square  upland  cotton  bales  in  the 
season  1912-13  was  508.7  pounds,  round  bales  253.9,  and 
sea-island  bales  381.9.    Broadly  speaking  the  standard  Ameri- 

*J.  J.  Arnold:  ** Financing  of  Cotton,''  The  Annals  of  the 
American  Academy  of  Political  and  Social  Science,  Sept.,  1911, 
p.  283. 

*  U.  3.  Census  BuUetin  No.  95,  p.  52. 


^ 


102 


AGEICULTUKAL  COMMERCE 


can  bale  weighs  500  pounds  and  is  generally  so  regarded  in 
domestic  markets.  On  the  settlement  of  contracts  in  the 
foreign  trade,  however,  "the  standard  for  cotton  from  Texas 
and  Arkansas  is  usually  fixed  at  530  pounds  her  bale,  that 
for  all  other  Gulf  cotton,  including  Alabama  and  Oklahoma, 
at  510  pounds,  while  that  from  other  sections  is  fixed  at  500 

pounds."  ^ 

At  a  small  percentage  of  the  gins,  the  baled  cotton  is  com- 
pletely covered  with  bagging,  but  usually  a  space  on  each  side 
of  the  bale  remains  exposed,  for  before  the  bale  is  shipped 
to  its  final  destination  it  is  recompressed  into  a  smaller,  more 
compact  bale.    The  amount  of  tare— bagging  and  iron  bands 
—used  at  the  ginneries  varies  from  19  to  24  pounds,  or  from 
3.8  to  4.8  per  cent,  of  the  gross  weight  of  a  500-pound  bale. 
Local  Storage  and  Hauling.— The  seed-cotton  is  hauled  to 
the  gins  by  the  growers  in  open  wagons.    After  being  baled 
it  may  be  sold  at  the  gin,  it  may  be  stored,  it  may  be  con- 
signed to  a  factor  for  sale  at  some  larger  cotton  market  and 
shipped  to  him  by  rail  or  water,  it  may  be  hauled  directly  to 
a  nearby  cotton  mill,  it  may  be  taken  to  a  local  railroad  station 
or  steamboat  landing  for  sale,  or  it  may  be  taken  back  to  the 
farm.     The  bales  are  often  subjected  to  rough  and  careless 
handling.    At  the  railroad  stations  and  markets  they  are  some- 
times piled  on  open  platforms  or  even  on  the  ground,  and 
when  taken  back  to  the  farms  they  are  sometimes  left  out  in 
the  open,  unprotected  from  rain  or  farm  animals.    One  source 
of  great  waste  in  the  cotton  trade  is  gradually  being  elimi- 
nated by  the  construction  of  a  greater  number  of  protected 
storage  places.     When  cotton  is  stored  in  recognized  ware- 
houses, whether  by  growers  or  buyers,  warehouse  receipts  are 
issued.     Such  receipts  are  used  by  some  growers  to  obtain 
loans  from  banks  in  order  to  avoid  the  sale  of  their  cotton 
at  low  prices,  and  by  cotton  buyers  to  obtain  funds  for  the 
financing  of  their  transactions. 

At  some  time  or  other  most  of  the  cotton  is  hauled  to  local 
shipping  points.    The  hauling  is  done  mainly  by  the  growers, 
although  in  exceptional  instances  it  is  done  by  hired  freighters. 
*U.  S.  Bureau  of  Corporations:   Cotton  Tare,  p.  4. 


tl! 


THE  LOCAL  COTTON  MARKET 


103 


Cotton  being  a  more  valuable  commodity  than  grain,  it  may  be 
hauled  in  smaller  loads  and  the  hauling  cost  is  of  relatively 
smaller  moment.  In  1906  the  Department  of  Agriculture 
stated  that  for  the  United  States  as  a  whole  the  average  cost 
of  hauling  cotton  from  farms  to  shipping  points  was  about 
80  cents  per  bale,  and  the  average  load  a  fraction  more  than 
three  bales.^  The  average  cost  per  hundred  pounds  m  that 
year  ranged  from  9  to  23  cents  in  the  various  cotton-growmg 
states,  and  the  average  distance  to  shipping  points  from  7.9 
to  15  miles.  In  1915  the  average  load  was  reported  to  be  three 
bales  and  the  average  distance  to  market  somewhat  less  than 
it  had  been  nine  years  earlier.^ 


Sale  op  Cotton  by  the  Grower 

Cotton  may  be  sold  either  after  it  is  ginned  or  as  seed- 
cotton.  The  former  practice  prevails  almost  universally  in 
the  United  States,  for  the  sale  of  "cotton  in  the  seed  is  a  sort 
of  game  of  chance  based  on  the  law  of  averages."  "The  prac- 
tice of  selling  cotton  in  the  seed  is  confined  almost  exclusively 
to  the  western  end  of  the  cotton  belt.  The  better  class  of  buy- 
ers base  their  calculations  of  lint  percentages  in  making  their 
offers  for  cotton  on  the  comparative  yield  from  day  to  day  of 
lint  to  seed  in  their  own  gin  or  the  one  which  they  patronize. 
As  a  result  the  farmer  who  grows  a  better  variety  yieldicg  a 
higher  percentage  of  lint  gets  only  the  average  price,  and  the 
one  who  grows  a  'sorry'  variety  will  in  most  cases  receive 
some  of  the  benefits  that  belong  to  his  more  progressive   .eigh- 

There  are  various  methods  by  which  the  growers  sell  their 
cotton  crop,  for  they  are  affected  by  the  financial  condition  of 
the  growers,  the  existence  of  different  kinds  of  buyers,  the 
number  of  available  storage  houses,  the  amount  of  cooperation 
among  the  growers,  the  prevailing  price,  the  ease  or  difficulty 

*U.  S.  Bureau  of  Statistics,  Bulletin  No.  49,  p.  21. 

'Bureau  of  Crop  Estimates,  Farmers'  Bulletin  No.  672,  p.  12. 

»U   S   Department  of  Agriculture  Year  Book  (1912),  p.  453. 


104 


AGEICULTURAL  COMMERCE 


THE  LOCAL  COTTON  MARKET 


105 


of  reaching  the  large  cotton  markets  or  the  cotton  mills  of  the 
South,  the  prevailing  custom,  the  intelligence  of  the  growers 
and  by  other  considerations.  During  the  slave  days  the  cotton 
grown  on  large  plantations  was  usually  consigned  directly  to 
the  cotton  factors  or  commissionmen  located  at  the  large  sea- 
ports such  as  Charleston,  Savannah,  and  New  Orleans,  the 
grower  paying  a  commission  for  the  sale  of  his  cotton  and 
also  handling  and  shipping  costs  such  as  cartage,  freight, 
storage,  insurance,  weighing,  compressing  and  repairing  bag- 
ging. 

This  method  continued  for  a  time  after  the  Civil  War, 
but  with  the  break-up  of  most  of  the  plantations  into  smaller 
farms,  many  of  the  small  landowners  and  tenants  had  insuf- 
ficient marketing  knowledge  or  were  unable  to  assume  the 
responsibility  of  consigning  their  cotton  to  distant  factors. 
The  old  method,  although  it  did  not  disappear  entirely,  was 
largely  displaced  by  a  system  of  numerous  middlemen.  The 
small  growers  frequently  sold  their  crop  to  a  local  merchant 
at  the  county  seat  or  other  local  town,  and  the  cotton  then 
passed  successively  through  the  hands  of  a  commissionman 
at  the  state  capital,  a  dealer  at  the  seaport  and  a  New  York 
exporting  concern.^ 

At  the  present  time  the  farmers  sell  their  cotton  in  differ- 
ent ways,  and,  as  will  be  seen  in  the  following  chapter,  the 
local  buyers  in  turn  dispose  of  their  purchases  variously. 

1.  Sale  to  Local  Merchants.— In  parts  of  the  eastern 
cotton  belt — in  the  states  of  the  South  Atlantic  seaboard  where 
68.7  per  cent,  of  the  farms  in  1910  comprised  less  than  fifty 
acres  and  where  some  of  the  growers  are  financially  weak — a 
portion  of  the  cotton  crop  is  still  sold  to  local  merchants, 
bankers  or  landlords  or  through  them  as  commissionmen.  The 
system  is  a  remnant  of  the  conditions  which  followed  the 
break-up  of  the  large  plantations.  The  weak  financial  condi- 
tion of  some  of  the  small  landowners  and  especially  the  small 
tenants,  not  only  obliges  or  induces  them  to  sell  their  cotton 
immediately  after  it  is  harvested,  but  it  causes  them  to  pledge 
the  growing  crop  with  local  merchants  for  an  advance  of 

*C.  W.  Burkett  and  C.  H.  Poe:    Cotton,  p.  72.  " 


■ 


i 


needed  implements,  supplies,  livestock  or  funds.  The  loans 
are  usually  obtained  from  local  merchants,  but  sometimes 
from  local  bankers,  or  in  the  case  of  tenants,  from  landlords. 
The  tenants  of  large  landowning  corporations  or  syndicates 
sometimes  obtain  advances  from  general  merchandise  stores 
which  are  operated  by  those  concerns.  In  any  case,  the 
growers  who  obtain  the  advances,  which  may  amount  to  30 
or  40  per  cent,  of  the  estimated  value  of  their  cotton  crops, 
must  settle  with  the  merchant,  banker  or  landlord  when  their 
cotton  is  sold.  They  may  sell  the  cotton  to  the  merchants 
who  in  many  cases  are  cotton  buyers,  or  'they  may  sell  it 
through  them  on  a  commission  basis,  but  they  receive  merely 
the  balance  due  after  the  merchant's  loans  are  repaid. 

This  method  is  necessarily  an  expensive  one.    The  growers 
are  obliged  to  pay  interest  on  the  loans  which  they  obtain, 
and  since  the  merchants  in  turn  frequently  borrow  from  banks, 
the  interest  charges  paid  by  the  growers  are  usually  high.    If 
they  sell  to  the  local  merchants  a  dealer's  profit  is  deducted 
from  the  price  which  they  receive.     If  they  sell  through 
them  they  are  obliged  to  pay  a  commission  of  about  $1.00  per 
bale.     If  they  store  the  cotton  with  the  merchant  they  are 
obliged  to  pay  a  storage  charge  of  50  cents  a  bale.    The  sys- 
tem, moreover,  induces  them  to  sell  their  crop  as  soon  as 
possible,  i.  e.,  during  the  harvesting  season  when  prices  are 
frequently  at  their  lowest  level.     The  method  is  gradually 
declining  in  importance,  for  the  growers  are  becoming  finan- 
cially stronger,  other  buyers  are  appearing  at  the  local  mar- 
kets, and  the  cooperative  farmers'  unions  are  in  some  instances 
providing  other  means  for  obtaining  loans  and  for  storing 
cotton  in  warehouses. 

2.  Sale  to  Exporting  Houses  and  Cotton  Brokers. 
—The  practice  which  prevails  the  most  widely  throughout 
4he  Gulf  states,  Texas  and  Oklahoma,  but  which  is  also  be- 
coming common  in  the  eastern  cotton  belt,  is  the  direct  sale 
by  the  grower  to  the  agents  of  large  exporting  houses  and 
other  cotton-buying  firms  or  brokers  who  ship  the  cotton 
abroad  or  to  the  northern  mills.  The  large  exporting  houses 
have  their  main  offices  at  New  York  or  New  Orleans,  and 


106 


AGEICULTURAL  COMMERCE 


branch  offices  at  some  of  the  principal  cotton-trading  centers 
such  as  Galveston,  Memphis,  Atlanta,  Savannah,  and  Houston, 
and  if  the  main  office  is  in  New  York,  they  also  have  a  branch 
office  at  New  Orleans.    Growers  in  the  immediate  vicinity  of 
these  cities  sell  their  crop  at  these  branch  offices,  but  the 
usual  practice  is  to  sell  it  to  local  agents  who  are  sent  through- 
out the  cotton-growing  districts.     The  large  exporting  con- 
cerns have  local  representatives  at  the  larger  interior  towns 
or  interior  points  of  concentration  who  buy  cotton  directly 
from  the  growers  who  haul  it  there.    The  trading  at  some  of 
the  larger  interior  markets  is  done  in  accordance  with  the  rules 
of  local  cotton  exchanges.   Since  much  cotton  is  sold  at  these 
points  by  local  merchants  and  commissionmen  as  well  as  di- 
rectly by  farmers,  and  as  they  perform  various  other  functions, 
they  will  be  more  fully  described  in  the  following  chapter.  The 
large  exporting  houses  also  send  traveling  buyers  to  many 
local  markets  to  purchase  cotton  directly  from  the  growers  at 
the  gins,  the  railroad  stations,  steamboat  landings,  local  ware- 
houses and  cotton  yards,  or  at  growers'  premises.     Some  of 
them  have  more  than  one  hundred  local  representatives  and 
traveling  buyers  to  purchase  from  the  growers  and  local  deal- 
ers all  the  cotton  they  are  able  to  obtain  at  current  prices. 

The  smaller  cotton-buying  firms  or  brokers  also  purchase 
much  cotton  directly  from  the  farmers  through  local  buying 
agents,  but  they  do  most  of  their  buying  only  after  they  have 
obtained  orders  from  the  spinners  or  their  representatives. 
Having  booked  the  cotton  for  future  delivery  they  instruct 
their  buyers  to  purchase  the  required  quantity  at  prices  suffi- 
ciently low  to  yield  a  trade  profit. 

3.  Sale  to  Southem  Mills.— Since  1903  the  mills  lo- 
cated in  the  cotton-growing  states  have  consumed  more  Ameri- 
can cotton  than  the  mills  located  in  the  New  England  and 
other  northern  states.  During  the  year  ending  August  31, 
1914,  the  total  cotton  consumption  of  the  southern  mills,  in- 
cluding imported  cotton,  amounted  to  3,023,415  running  bales 
(counting  round  bales  as  half -bales)  while  those  of  all  other 
states  amounted  to  2,861,318  bales.^    The  takings  of  American 

*  As  reported  by  U.  S.  Census,  in  Bulletin  No.  128,  p.  8. 


THE  LOCAL  COTTON  MARKET 


107 


cotton  in  the  southern  and  northern  mills  were  respectively 
3,037,308  and  2,513,622  bales.^  In  parts  of  North  and  South 
Carolina,  Georgia  and  Alabama  where  most  of  the  southern 
mills  are  located  and  to  a  smaller  extent  in  Tennessee,  Missis- 
sippi, Texas  and  Virginia,  some  growers  sell  their  cotton 
directly  to  the  spinners.  The  southern  spinners  obtain 
much  of  their  supply  from  growers  and  local  merchants  who 
sell  directly  at  the  mills,  and  some  of  them  also  send  buyers 
through  the  districts  which  grow  cotton  suited  to  their  par- 
ticular needs.^  The  sale  of  cotton  by  growers  to  local  mills  is 
the  most  direct  method  of  selling  cotton  in  existence  and  or- 
dinarily yields  to  the  growers  the  highest  profits.  The  south- 
ern mills,  being  in  competition  with  buyers  who  ship  cotton 
abroad  or  to  northern  mills,  are  obliged  to  pay  such  prices  as 
market  conditions  warrant.  The  sales  being  direct,  all  selling 
costs  are  in  some  cases  avoided ;  in  others  there  is  a  weighing 
charge  of  from  10  to  25  cents  per  bale,  but  at  most  the  mar- 
keting costs  do  not  exceed  50  cents  per  bale. 

4.  Consigfninent  to  Cotton  Factors. — Some  growers,  in- 
stead of  selling  their  cotton  to  local  buyers,  consign  it  to  com- 
missionmen or  factors  at  the  larger  interior  points  of  concen- 
tration or  at  the  ports.  The  factors  who  handle  cotton  for 
growers,  local  merchants  and  others  may  sell  the  consignments 
immediately,  and  charge  a  commission  of  say  one  dollar  per 
bale  for  their  services.  They  may  also  insure  the  cotton,  place 
it  in  storage,  and  make  an  advance  of  from  60  to  75  per  cent, 
of  its  market  value  to  the  owner.  At  times  they  make  advances 
to  farmers  with  the  growing  crop  as  security.  A  part  of  the 
funds  used  to  make  advances  is  obtained  from  banks  which 
accept  storage  receipts  as  security  for  loans.^  Since  most  of 
the  growers  sell  their  crop  at  the  local  markets,  the  central 
commissionmen  handle  less  cotton  for  growers  than  for  mer- 
chants and  other  local  buyers. 

*  As  reported  by  the  Secretary  of  New  Orleans  Cotton  Exchange 
in  Annual  Eeport  for   1913-1914. 

'M.  T.  Copeland:  The  Cotton  Manufacturing  Industry  of  the 
United  States,  p.  183. 

•J.  J.  Arnold:  ''Financing  of  Cotton,"  The  Annals  of  the 
American  Academy  of  Political  and  Social  Science,  Sept.,  1911,  p.  282. 


r 


\. 


108 


AGKICIJLTUEAL  COMMERCE 


THE  LOCAL  COTTON  MARKET 


109 


5.  Sale  to  Foreign  Buyers. — ^While  the  bulk  of  the  cot- 
ton shipped  abroad  is  sold  and  shipped  to  foreign  buyers  by 
American  cotton  exporters,  some  Liverpool  and  Manchester 
cotton  houses  send  buyers  to  the  United  States.^  These  buy- 
ers, however,  make  their  purchases  mainly  at  the  large  interior 
and  port  markets,  and  consequently  purchase  relatively  little 
cotton  directly  from  the  growers. 

6.  The  Cotton-growers'  Unions. — Some  cotton  has  in 
recent  years  been  sold  at  cooperative  farmers'  warehouses  by 
the  farmers  themselves  or  by  the  warehouse  company  upon 
payment  of  a  fee  or  commission  of  say  50  cents  per  bale.^ 
Some  of  the  cooperative  warehouses  classify  and  grade,  sample, 
weigh,  and  after  grouping  it  into  lots  of  50  or  more  bales,  sell 
cotton  for  the  growers.  The  activities  of  the  growers'  unions 
have,  however,  been  wider  than  the  sale  of  cotton  for  their 
members,  the  actual  sales  through  union  salesmen  comprising 
but  a  small  part  of  the  cotton  crop. 

The  cotton  growers  have  cooperated  chiefly  through  the 
Farmers'  Educational  and  Cooperative  Union  of  America  or 
^'Farmers'  Union"  which  was  organized  in  1902,  and  the 
Southern  Cotton  Association  which  was  organized  in  1900  but 
which  is  no  longer  active.^  Other  associations  and  conventions 
such  as  the  Alliance  and  the  Grange  have  also  been  formed 
at  various  times,  but  the  Farmers'  Union  which  claims  a 
membership  of  three  million,  is  the  principal  active  coopera- 
tive organization  in  the  cotton  trade.  It  consists  of  a  na- 
tional body,  various  state  organizations  or  "divisions,"  many 
county  organizations,  and  a  still  larger  number  of  ^%cal 
unions."  Its  membership  includes  fruit  growers,  grain  grow- 
ers and  other  farmers,  teachers,  ministers  and  physicians,  as 
well  as  cotton  growers,  but  the  organization  is  strongest  in  the 
cotton  states,  particularly  in  Texas,  Oklahoma,  Arkansas, 
Georgia,  Mississippi  and  Louisiana. 

Cooperation  was  undertaken  by  the  cotton  growers  as  the 
result  of  a  long  period  of  low  prices.     The  Bureau  of  Crop 

^Copeland:    p.  354. 

*  Bureau  of  Corporations:     Cotton  Exchanges,  Part  V,  p.  353. 

'Ibid.,  p.  321;  G.  H.  Powell:    Cooperation  in  Agriculture,  p.  185. 


Estimates  has  estimated  that  the  average  cost  of  producing  a 
pound  of  cotton  exceeds  8  cents,^  yet  from  1890  to  1904-1905 
the  average  price  at  New  Orleans  with  the  exception  of  two 
seasons  was  less  than  9  cents  a  pound,  and  during  some  sea- 
sons went  below  five  and  six  cents.  The  movement  became 
especially  active  in  1904-1905  when  the  average  price  at  New 
Orleans,  after  rising  to  12.2  cents  in  the  previous  year,  again 
fell  to  8.7  cents,  but  it  received  a  set-back  in  1907-1908  when 
the  financial  panic  together  with  other  conditions  made  impos- 
sible the  Union's  demand  for  a  grower's  price  of  15  cents. 

The  cooperative  farmers'  unions  have  been  active  in  vari- 
ous ways.  They  have  endeavored  to  restrict  production  by 
reducing  cotton  acreage.  Their  general  policy  in  this  regard 
has  been  to  encourage  the  farmers  to  grow  less  cotton  and 
more  corn  or  other  diversified  crops,  but  they  have  also  at 
times  advised  members  to  plow  up  cotton  fields  which  were 
already  planted.  The  Southern  Cotton  Association  was  espe- 
cially active  in  discouraging  cotton  production  in  1905-1906^ 
and  the  agitation  appears  to  have  been  temporarily  effective, 
for  the  acreage  harvested  during  that  season  fell  to  slightly 
over  26,000,000  acres,  from  30,000,000  in  the  previous  season. 
Since  then  the  cotton  acreage  has  risen  to  over  37,000,000 
acres  and  it  is  impossible  to  judge  the  full  effect  of  later  efforts 
to  restrict  the  production  of  cotton. 

The  cooperative  unions  attempted  to  maintain  cotton  prices 
by  recommending  minimum  prices  for  the  crop,  varying  from 
10  to  15  cents  a  pound.  To  enable  the  members  to  hold  their 
crop  until  the  recommended  prices  are  paid  they  have  estab- 
lished some  1,600  warehouses.  These  warehouses,  which  are 
mostly  of  small  capacity,  are  usually  operated  by  separately 
organized  companies  or  associations.  They  store  the  cotton 
for  members,  obtain  loans  for  them  through  regular  banking 
channels  at  favorable  rates  of  interest  with  the  stored  cotton 
as  security,  and  as  formerly  stated  classify  and  grade,  weigh, 
sample  and  sell  the  cotton  when  instructed  to  do  so.  The 
actual  effect  of  the  price-fixing  and  warehouse  policy  cannot 

-'  -  *  Estimates  for  years  1909  4uid  1910,  Farmers'  Bulletin  No.  641, 
p.  14. 


I 


I 


110  AGRICULTUEAL  GOMMEECE 

be  accurately  judged,  for  cotton  prices  are  influenced  by  many 
varying  conditions.  The  growers  have  not  received  the  prices 
urged  by  the  unions  and  the  warehouses  have  handled  but  a 
small  share  of  the  total  cotton  crop.  Efforts  have  recently 
been  made  to  consolidate  the  local  warehouses  into  central 
companies,  with  central  agents  to  act  for  them  in  marketing 

*  %he  producers'  unions  have  also  endeavored  to  restrict 
production  by  discouraging  the  use  of  commercial  fertilizers 
.  Some  of  them,  however,  have  organized  companies  to  operate 
fertilizer  plants.  The  "Farmers'  Union"  has  formed  corpora- 
tions  or  associations  to  operate  gins,  to  purchase  supplies  own 
newspapers  and  engage  in  other  business  enterprises.  It  has 
urged  a  legislative  program  which  it  regards  as  beneficial  to 
thf  farming  population,  and  it  is  also  a  secret  orgamzation 
which  acts  in  a  fraternal,  educational  and  social  capacity. 

The  Deteemination  of  the  Gbowees'  Prices 

As  in  the  case  of  country  grain  prices,  the  prices  received 
by  the  growers  of  cotton  are  based  primarily  upon  the  prices 
prevailing  at  the  large  central  markets  which  reflect  the  ca- 
bined judgment  of  the  buyers  and  sellers  of  the  world     Cotton 
producers' prices,  however,  are  more  complex  than  those  paid 
rlin  growers.    The  latter  are  based  directly  upon  the  price 
at  which  grain  is  sold  at  the  large  primary  markets,  the  gram 
buyers  knowing  that  the  relation  between  spot  prices  and  the 
prices  of  future  contracts  on  the  grain  exchanges  is  usual  7 
sufficiently  definite  to  enable  them  to  readily  hedge  should 
they  desire  to  do  so.    Many  cotton  buyers  also  desire  to  pro- 
tect themselves  against  losses  resulting  from  Anctuations  in 
cotton  prices  by  hedging  in  the  speculative  cotton  markets 
i   e    when  buying  cotton  they  wish  to  sell  an  equal  quantity 
of  futoe  contracts  and  when  contracting  to  deliver  cotton 
which  they  have  not  as  yet  purchased  they  wish  to  purchase 
In  equal  quantity  of  future  contracts.^    The  cotton^xchanges 
*  See  chap,  vii,  p.  156. 


I 


THE  LOCAL  COTTON  MAEKET 


111 


at  which  this  hedging  is  done  are  mainly  those  at  New  York, 
New  Orleans  and  Liverpool.  Future  and  spot  cotton  prices, 
however,  have  not  in  the  past  borne  the  definite  relationship 
to  each  other — they  have  not  maintained  the  substantially  ex- 
act parity  which  is  maintained  in  the  grain  trade.  Owing 
largely  to  the  right  to  deliver  many  different  grades  of  cotton 
on  a  future  contract  which  is  made  out  in  terms  of  middling 
cotton  and  the  failure  to  establish  the  "differences"  between 
the  various  deliverable  grades  with  exactness,  cotton  futures 
have  frequently  sold  at  an  abnormal  discount  as  compared 
with  the  prices  paid  for  spot  cotton  at  the  large  spot  markets. 
Since  many  cotton  buyers  consider  hedging  essential  to  the 
economical  handling  of  the  cotton  crop  and  cotton  "futures" 
are  necessary  in  order  to  hedge,  the  failure  to  maintain  a 
parity  between  the  prices  of  spot  cotton  at  the  large  cotton 
markets  and  the  price  of  futures  has  obliged  such  cotton 
buyers  to  base  the  country  price  primarily  upon  the  price  of 
future  contracts. 

The  following  statement  by  the  United  States  Bureau  of 
Corporations  indicates  the  extent  to  which  producers'  prices 
are  based  upon  future  contract  prices : 

A  matter  of  great  importance  to  the  current  discussion  is 
that  these  interior  buyers  very  generally  base  their  bids  on  the 
future  quotations  of  some  cotton  exchange.  That  is  to  say, 
in  arriving  at  the  prices  which  they  will  pay  producers  they 
constantly  consult  the  future  market  and  add  to  or  deduct  a 
certain  number  of  points,  technically  known  as  "limits,"  ac- 
cording to  the  state  of  the  market,  the  grade  of  the  cotton,  or 
other  circumstances.  In  the  case  of  a  merchant  having  buyers 
in  the  interior,  the  limits  which  are  thus  to  be  added  to  or 
deducted  from  the  contract  price  are  determined  at  the  head 
office.  They  are  sent  to  the  field  representatives  to  govern  pur- 
chases from  cotton  producers  and  country  merchants.  These 
interior  buyers,  in  case  they  do  not  have  ready  access  to  future 
quotations,  are  kept  advised  by  the  head  office  of  any 
important  changes  in  them  and  they  use  these  future  prices  in 
connection  vrith  the  limits  furnished  them  in  making  their 
purchases.* 

*  Beport  on  Cotton  Exchanges,  Part  IV,  p.  50. 


IM 


112 


AGRICULTURAL  COMMERCE 


Prior  to  the  application  of  the  ^^Cotton  Futures  Act"  of 
August  18,  1914,  the  cotton  buyers  did  their  hedging  on  any 
one  of  the  three  great  speculative  exchanges,  and  they  shifted 
their  hedges  from  one  to  another,  according  to  which  market 
was  best  adapted  at  any  particular  time.  They  likewise  based 
their  buying  prices  upon  the  future  prices  of  any  one  of  these 
exchanges,  for  they  knew  what  middling  cotton  was  normally 
worth  at  any  point  in  the  cotton  belt  as  compared  with  the 
prices  at  which  futures  were  selling  in  New  York,  New  Orleans 
or  Liverpool.  Knowing  the  correct  price  for  middling  cot- 
ton they  could  readily  judge  how  much  more  or  less  should 
be  paid  for  the  higher  and  lower  grades.  Since  the  enactment 
of  the  above-mentioned  act  American  concerns  have  been 
unable  to  hedge  on  the  Liverpool  or  any  other  foreign  exchange 
because  of  a  prohibitive  tax  of  two  cents  per  pound.  They 
have,  however,  continued  to  hedge  on  the  New  York  and  New 
Orleans  exchanges  although  on  a  somewhat  smaller  scale  than 
formerly;  and  foreign  cotton-purchasing  concerns  have  con- 
tinued to  hedge  on  the  Liverpool  Exchange. 

The  common  practice  of  the  large  as  well  as  of  numerous 
small  buying  concerns  is  to  instruct  their  interior  buyers  to 
purchase  at  a  given  number  of  "points"  (hundredths  of  a  cent) 
*^off"  or  *^on"  the  price  at  which  future  contracts  are  selling 
at  some  one  of  the  speculative  exchanges.  Whether  these  so- 
called  limits  will  be  "off"  or  "on"  will  depend  upon  varying 
conditions  such  as  the.  month  selected  for  hedging,  the  extent 
to  which  the  futures  are  selling  at  a  discount,  whether  the 
prices  are  paid  for  delivery  at  the  interior  market,  at  the  port 
of  shipment  or  at  final  destination  and  whether  or  not  trans- 
portation and  other  costs  are  included  in  the  limits.  Instead 
of  calculating  a  limit  "on"  or  "off"  the  future  price,  a  mer- 
chant, exporter  or  broker  may  compute  a  definite  price  as  a 
guide  for  his  buyers.  In  any  event  the  price  paid  to  the 
grower  ordinarily  is  one  that  is  based  upon  the  future  prices 
of  one  of  the  speculative  exchanges  minus  freight,  compress, 
purchasing  and  handling  costs  and  an  additional  amount  to 
cover  any  uninsured  risks  incident  to  the  business  and  a 
dealer^s  profit. 


THE  LOCAL  COTTON  MARKET  113 

In  the  United  States  cotton  is  commonly  bought  at  gross 
weight — lint  and  tare — but  in  selling  to  a  foreign  buyer  the 
American  exporter  is  usually  required  to  sell  at  net  weight  and 
at  c.  i.  f.  (cost,  insurance  and  freight)  prices.  Having  re- 
ceived an  offer  from  Liverpool,  the  exporter  in  addition  to  the 
usual  deductions  makes  an  allowance  of  6  per  cent,  of  the  gross 
weight  of  the  cotton  to  cover  tare,  and  deducts  ocean  freight 
and  insurance.  When  a  foreign  cotton  importer,  for  example, 
after  examining  the  price  of  futures  on  the  Liverpool  Ex- 
change bids  sixpence  for  cotton  delivered  in  Liverpool  on 
c.  i.  f.  and  6  per  cent,  terms,  the  American  exporter  calculates 
his  buying  price  by  deducting  from  12  cents  (the  equivalent  of 
sixpence)  the  following  amounts : 

Tare,  6  per  cent,  of  12  cents T2  points 

Inland  freight  and  compressing,  say 50      " 

Ocean  freight,  say  55      " 

Insurance,  say   11 

Expense  of  doing  business,  say 12       " 

Profit,  say 10      " 

Total 210      " 

Deducting  2.10  cents  from  12  cents  leaves  9.90  cents  as  the 
price  at  which  he  hopes  to  purchase  the  cotton  from  the 
farmer.^  This  calculation  contains  a  fixed  profit  of  50  cents 
per  bale  (10  points)  and  in  addition  a  hidden  profit  of  19 
points  due  to  the  deduction  of  6  per  cent.  (72  points)  for 
tare,  although  the  bale  purchased  from  the  farmer  contains 
only  about  4.4  per  cent  (53  points)  of  tare.  The  hidden 
profit  which  is  due  to  the  differences  in  the  tare  rules  ap- 
plicable in  the  United  States  and  foreign  countries  is  con- 
tingent, for  competition  may  compel  the  exporter  to  share  it 
with  the  grower  by  paying  him  more  than  9.90  cents,  and  the 
foreign  buyer  may  in  case  the  actual  tare  is  ascertained  by 
physical  test  present  a  claim  for  over-tare. 

While  the  prices  paid  to  the  cotton  growers  are  based 
primarily  upon  the  future  prices  of  the  speculative  exchanges, 

*  Bureau  of  Corporations:   Cotton  Tare,  p.  36. 


114 


AGKICULTTJKAL  COMMEKCE 


they  are  frequently  affected  by  other  considerations.  There 
are  numerous  local  buyers,  especially  some  of  the  country  mer- 
chants, who  do  not  calculate  their  prices  with  the  care  that 
the  larger  exporters  and  brokers  do;  there  are  local  spinners 
who  do  not  need  to  deduct  freight,  compressing  and  other 
handling  costs;  and  cotton  may  also  be  shipped  to  the  large 
interior  points  of  concentration  or  the  ports  on  consignment 
and  sold  at  the  spot  prices  which  are  there  paid.  Competition 
between  local  buyers,  therefore,  and  the  ability  of  some 
growers  to  sell  in  the  large  spot  markets,  obliges  the  local 
buyers  to  modify  their  calculations  whenever  the  future  con- 
tracts sell  at  abnormal  discounts  as  compared  with  the  cotton 
prices  of  the  large  spot  markets.  An  Oklahoma  cotton  firm, 
for  example,  which  in  1906-1907  computed  its  buyers'  limits 
with  reference  to  the  New  York  future  market,  gradually 
changed  its  limit  from  60  points  ^^off"  on  September  25,  to  10 
points  "off"  on  January  7;  "even"  on  January  14;  10  points 
"on,"  on  January  21;  and  30  points  "on"  on  February  11: 
because  the  New  York  futures  were  selling  at  an  increasingly 
abnormal  discount.^  The  season  of  1906-1907  is  an  extreme 
instance  because  the  New  York  revision  committee  at  that 
time  fixed  grossly  erroneous  differences  between  middling  cot- 
ton and  the  other  deliverable  grades,  but  it  illustrates  how  the 
cotton  buyer  cannot,  except  temporarily,  disregard  the  prices 
paid  in  the  large  spot  markets. 

It  is  to  be  understood,  also,  that  in  applying  the  limits 
based  upon  the  price  of  cotton  futures,  the  local  buyers  exer- 
cise their  judgments  as  to  the  quality  of  any  particular  lot 
of  cotton.  Limits  based  upon  middling  cotton  are  modified 
in  buying  cotton  of  higher  or  lower  grade,  and  different  staple 
lengths,  but  there  is  much  complaint  that  the  growers  of  high- 
grade  and  long-staple  cotton  do  not  always  obtain  the  relative 
prices  to  which  they  are  entitled.^  They  also  take  account  of 
the  amount  of  tare.  Owing  to  the  practice  of  buying  cotton 
at  gross  weight  growers  sometimes  believe  that  they  are  re- 


*  Bureau  of  Corporations:    Cotton  Exchanges,  Part  IV,  p.  58. 
"'The  Relation  of  Cotton  Buying  to  Cotton  Growing,''  The 
Bureau  of  Plant  Industry,  Bulletin  No.  60,  p.  7. 


THE  LOCAL  COTTON  MAKKET 


115 


ceiving  the  price  of  cotton  for  the  bagging  and  bands  on  the 
bale,  but  it  is  generally  understood  in  the  trade  that  this  view 
is  fallacious.  In  determining  the  price  of  cotton  futures  and 
spot  cotton  at  the  central  markets  full  allowance  is  made 
for  the  customary  amount  of  tare,  and  if  a  particular  lot  is 
over-tared  the  local  buyers  or  spinners  will  adjust  the  price 
paid,  make  an  allowance  in  the  weight,  or  refuse  to  purchase 
the  cotton. 

BIBLIOGKAPHY 

See  references  designated  by  an  *  appended  to  chap.vi,  pp. 
134, 135. 


CHAPTER   VI 

CENTRAL    COTTON    MARKETS:      THE    DISTRIBUTION    OF 

COTTON 

Having  described  the  local  cotton  market  and  the  manner 
in  which  the  growers  dispose  of  their  crops,  it  is  now  proposed 
to  trace  the  cotton  crop  in  its  movement  from  the  local  buyers 
to  the  spinning  mills  of  the  world.  As  the  growers  sell  their 
crops  in  different  ways  so  the  portion  which  is  shipped  out  of 
the  cotton  belt  is  sold  by  merchants,  exporters,  brokers  and 
factors  in  different  ways,  is  shipped  to  widely  varying  markets, 
and  moves  over  varying  routes. 


Supply  and  Distkibution' 

The  total  annual  supply  of  cotton  in  the  United  States 
shown  in  Table  VII  is  the  supply  for  the  year  ending  August 
31,  that  is  for  a  period  extending  from  one  cotton  harvest  to 
another.  It  is,  therefore,  in  excess  of  the  crop  grown  during 
the  preceding  season,  for  it  is  made  up  not  only  of  current 
ginnings  but  also  of  cotton  on  hand  at  the  beginning  of  the 
year,  the  imports  of  cotton  from  abroad,  and  the  quantity  of 
linters  produced  during  the  year. 

Cotton  Exports. — Although  the  quantity  retained  for  use 
in  American  mills  is  slowly  advancing  as  compared  with  the 
shipments  to  foreign  mills,  the  cotton  industry  is  still  de- 
pendent chiefly  upon  the  export  trade.  During  the  years  end- 
ing August  31,  1912,  1913  and  1914  (See  Table  VII)  59.7, 
54.2  and  54  per  cent.,  respectively,  of  the  total  cotton  supply 
and  an  equivalent  of  GG,  62  and  60  per  cent,  respectively  of 
the  total  crop  of  the  preceding  season,  was  shipped  abroad. 
Nearly  four-fifths  of  the  total  cotton  exports  are  shipped  to 

116 


CENTRAL  COTTON  MARKETS 


117 


the  United  Kingdom,  Germany  and  France.  For  many  years 
the  first  of  these  countries  took  the  bulk  of  all  the  cotton  ex- 
ported from  the  United  States,  and  in  the  fiscal  year  1914  ^ 

TABLE  VII 

Supply  and  Distribution  in  Years   Ending 
August  31,  1912,  1913  and  1914* 


Item 


Crop  of  previous  season 

Total  cotton  supply  of  United 

States 

Cotton  expMDrted. 

Cotton    consumed    in    United 
States 

In  cotton-growing  states .... 

In  other  states 

Cotton  destroyed  by  fire 

Cotton  on  hand  at  end  of  year . 

In    mills    of    cotton-growing 
^  states 

In  mills  of  other  states 

In  public  storage  places 

Elsewhere  (estimated) 


1912 


16,109,349 

17,896,226 
10,681,758 

5,367,583 
2,712,223 
2,655,360 
70,000 
1,776,885 

241,611 
629,035 
556,239 
350,000 


1913 


14,090,863 

16,275,734 
8,800,966 

5,786,330 
2,960,518 

2,825,812 

40,000 

1,648,438 

234,509 
543,649 
495,280 
375,000 


1914 


14,613,964 

16,492,408 
8,914,839 

5,884,733 
3,023,415 
2,861,318 
45,000 
1,647,836 

213,418 
537,801 
576,617 
320,000 


*  As  reported  by  U.  S.  Census  Office  in  Bulletin  No.  128,  p.  8. 


the  British  proportion  still  comprised  37.6  per  cent,  of  the 
total.  The  rapid  rise  of  the  cotton-manufacturing  industries 
in  other  countries,  since  the  later  nineties,  has,  however,  re- 
duced the  relative  preponderance  of  the  British  market. 
Nearly  30  per  cent,  of  the  total  exports  are  now  destined  to 
Germany,  11  or  12  per  cent,  to  France,  and  smaller  quanti- 
ties to  a  wide  range  of  foreign  markets  extending  from  Italy, 
Spain,  Belgium,  Austria-Hungary,  the  Netherlands,  and  Rus- 
sia in  Europe,  to  Canada  and  Mexico  in  the  Western  hemis- 
phere, and  Japan,  China  and  India  in  the  Orient.  Owing 
largely  to  irregularities  in  the  available  supply  of  East  Indian 
cotton,  which  is  the  chief  source  of  supply  for  Japanese  mills, 

*  Returns  of  Bureau  of  Foreign  and  Domestic  Commerce  for  Fis- 
cal Year  Ending  June  30tb. 


118 


AGKICULTUKAL  COMMERCE 


CENTRAL  COTTON  MARKETS 


119 


I 


1i 


I! 


the  exports  to  Japan  have  in  recent  years  been  subject  to 
violent  fluctuations. 

All  but  16  or  17  per  cent,  of  the  cotton  exports  are  shipped 
from  the  ports  of  the  cotton-growing  states.  Galveston,  alone, 
exports  from  2,700,000  to  3,800,000  bales  annually,  and  the 
three  principal  cotton  ports — Galveston,  New  Orleans  and 
Savannah — handle  about  70  per  cent,  of  all  the  cotton  exports. 
The  remainder  is  exported  principally  from  New  York,  Wil- 
mington (North  Carolina),  Brunswick,  Mobile,  Charleston, 
Pensacola,  San  Francisco,  Boston,  Baltimore  and  Seattle. 

Shipments  to  Northern  Mills.— Of  the  5,300,000  to  5,800,- 
000  bales  of  cotton  consumed  by  domestic  mills  in  recent 
years  {See  Table  VII),  from  2,600,000  to  2,800,000  bales,  or 
less  than  one-half,  were  consumed  in  the  mills  of  New  England 
and  other  northern  states.  As  reported  by  the  New  Orleans 
Cotton  Exchange,  the  shipment  of  American  cotton  to  the 
northern  mills  comprised  2,488,000  bales  in  the  year  ending 
August  31,  1913,  and  2,514,000  in  1914  or  about  17  per  cent, 
of  the  season's  crop.* 

The  shipments  to  northern  mills  are  made  over  two  general 
routes — "overland"  and  coastwise.  From  44  to  47  per  cent, 
of  the  total  shipments  in  the  crop  years  1912-1913  and  1913- 
1914  were  made  over  the  former  route,  the  railroad  freight 
rates  being  so  arranged  that  cotton  can  readily  move  direct 
to  northern  mill  centers.  Cotton  moving  northward  by  rail 
passes  through  the  various  so-called  "northern  gateways"  such 
as  St.  Louis,  Hannibal,  Cairo,  Louisville,  Cincinnati,  Eock 
Island,  Parker  and  other  cities  lying  mainly  on  the  Ohio  and 
Potomac  rivers.  The  coastwise  route,  which  for  many  years 
handled  the  bulk  of  the  northern  cotton  shipments,  still  han- 
dles over  one-half  of  them — 56  and  53  per  cent,  respectively 
in  the  years  1912-1913  and  1913-1914.  Cotton  is  regularly 
shipped  northward  from  each  of  the  southern  ports  men- 
tioned in  connection  with  the  cotton  export  trade. 

Consumption  by  Southern  Mills. — So  rapid  has  been  the 
rise  of  the  cotton-manufacturing  industry  in  the  cotton-grow- 


\ 


\ 


1914. 


*  Secretary  of  New  Orleans  Cotton  Exchange:    Eeport  of  1913- 


ing  statles  that  they  have  in  recent  years  consumed  from  2,700,- 
000  to  3,000,000  bales,  or  more  than  the  total  mill  consump- 
tion of  the  New  England  and  other  northern  states  {See 
Table  VII).  Their  takings  of  American  cotton  during  the 
years  ending  August  31,  1913  and  1914  aggregated  2,969,000 
and  3,037,000  bales  respectively  or  about  20  per  cent,  of  the 
previous  season's  crop.^  Southern  mills  consume  but  small 
quantities  of  foreign  cotton  because  they  require  less  high- 
grade,  long-staple  cotton,  such  as  is  imported  from  Egypt  by 
the  northern  mills.  The  southern  mills  are  especially  im- 
portant as  spinners  of  yarn,  a  part  of  which  is  woven  in  the 
South  and  the  remainder  of  which  is  used  in  the  northern 
textile  industries. 

Direct  Shipments 

About  one-half  of  the  cotton  purchased  from  the  growers 
at  the  many  local  cotton  markets  of  the  South  is  shipped 
directly  from  the  local  shipping  points  to  the  southern  and 
northern  mills  or  to  the  ports  of  shipment  without  first  mov- 
ing through  the  large  central  markets  of  the  interior.  Much 
of  the  cotton  shipped  directly  to  the  ports,  moreover,  has  been 
billed  to  northern  mills  or  foreign  importing  merchants  from 
interior  compress  points  on,  through  bills  of  lading,  and 
merely  passes  through  the  ports  in  transit.  This  is  particu- 
larly true  when  the  cotton  locally  purchased  is  to  be  applied 
on  a  contract  already  booked. 

MnrTring  and  Tagging. — Before  the  cotton  leaves  the  local 
shipping  points  the  bales  are  tagged  so  that  they  will  not  lose 
their  identity.  Ordinarily  lots  of  from  twenty-five  to  one 
hundred  bales  are  tagged  with  the  same  mark,  such  as  "Hark," 
which  they  retain  thereafter  throughout  their  journey  to  the 
mills.  While  deliveries  may  be  made  on  cotton  contracts 
by  grade  as  in  the  case  of  grain,  the  cotton  after  it  leaves  the 
,  growers  does  not  lose  its  identity  as  the  ^ain  which  is  stored 
in  bulk  usually  does. 

*  Secretary  of  New  Orleans  Cotton  Exchange:    Eeport  of  1913- 
1914. 


I 


\  I 

I 


I 


120 


AGEICULTURAL  COMMERCE 


Compressing  Flat  Bales.— Cotton  shipped  direct  from  local 
points  to  mills  or  ports  must  in  many  cases  be  unloaded 
en  route  in  order  that  the  "flat"  gin  bales  may  be  "recom- 
pressed"  into  bales  of  about  one-half  their  original  thickness. 
The  law  as  well  as  the  carriers  require  this  recompression  at 
the  first  compress  passed  en  route  to  port  or  other  distaot  des- 
tmation  so  as  to  facilitate  shipment  and  economize  railroad 
and  steamship  equipment.  The  compresses  are  usually  owned 
and  operated  either  by  the  railroads,  by  cotton-buying  con- 
cerns, or  special  compress  companies,  but  few  gins  as  yet  being 
equipped  with  compresses.  Compression  is  so  closely  con- 
nected with  the  transportation  service  that  it  is  regulated  by 
the  state  railroad  commissions  and  by  the  Interstate  Commerce 
Commission.^ 

The  cars  containing  the  flat  bales  are  usually  switched  in 
on  one  side  of  the  compress  and  those  receiving  the  com- 
pressed bales  are  placed  on  the  other  side.     Meanwhile  com- 
press receipts  are  issued,  for  during  the  busy  season  fifteen 
or  more  days  may  pass  before  the  cotton  is  finally  loaded  out 
of  the  compress.    These  receipts,  a  copy  of  which  is  reproduced 
m  Form  No.  15,  are  accepted  by  bankers  as  security  for  loans, 
and  when  cotton  is  sold  at  the  compress  a  transfer  of  the  re- 
ceipts constitutes  a  delivery.     In  many  cases  the  cotton  is 
shipped  to  the  compress  on  local  bills  of  lading  and  at  local 
rates,  with  the  understanding  that  upon  satisfactory  presenta- 
tion of  proof  of  reshipment  the  difference  between  the  local 
rates  and  the  relatively  lower  through  rates  will  be  refunded  to 
the  shippers.   When  the  receipt  is  returned  the  compress  super- 
intendent issues  a  "clearance"  such  as  is  shown  in  Form  No. 
16,  after  which  the  compressed  bales  may  be  forwarded  to 
destination.     Upon  delivery  of  the  recompressed  bales,  the 
compress  usually  collects  its  fees  of  about  10  cents  per  100 
pounds  or  50  cents  per  bale  directly  from  the  railroad  which 
either  absorbs  this  charge  in  its  freight  rates  or  collects  it 
from  the  shipper  or  consignee  as  a  special  charge.    Compres- 
sion in  transit  resembles  the  milling-in-transit  privilege  men- 
tioned  in  connection  with  the  grain  trade. 

'See  29  I.  C.  C.  Eep.  106;  30  I.  C.  C.  Rep.  467,  etc. 


'*» 


'( 


A- 


CENTRAL  COTTON  MARKETS 


121 


Through  Bills  of  Lading. — On    shipments    made    direct 
from  compress  to  destination  the  railroad  issues  through  rail- 


mmm 


u^o ..367 


Marit  TexaSf' 


J  90 


3ales  Cotton 


For  Recount  of- 


MMM^HiiiU..rf^b^^l^ 


NOT  RESPONSIBLE  IN  CASE  OF  FIRE 

This  receipt  must  be  returned  before  clearance  wiU  be  issued 

MART  COMPRESS  CO. 

*Per 


Form  15 


road  or  export  (rail-ocean)  bills  of  lading.  The  shipping  con- 
cern concentrates  these  bills  at  some  point  where  it  maintains 
an  office  and  negotiates  a  draft  drawn  upon  the  buyer  or  the 
reimbursing  bank  designated  by  the  buyer.    To  the  draft  are 


Mart.  Texas. 


Iteceived  of- 


181 


.Bales  cotton  to  be  pressed  and  delivered  to  the  I.  4  Q,  N.  B.  R.  for  sbipment 


to- 


Mark. 


Patchea 


-Sales. 
-Bales. 
-Bales- 
-Bales. 
-Bales- 


Bands: 


MART  COMPRESS  CO. 


-Sup't 


Form  16 

attached  the  through  bill  of  lading,  an  invoice,  and,  if  it  is 
an  oversea  shipment,  a  marine  insurance  certificate.^ 

Cotton  Insurance. — Some  of  the  larger  growers  take  the 
precaution  to  insure  their  crop,  but  the  smaller  farmers  sel- 

,        '  See  p.  312.  ' 


122 


AGBICULTTTRAL  COMMERCE 


dom  insure  their  cotton  until  it  is  put  into  warehouses  for 
storage.  After  the  cotton  has  left  the  growers,  however,  it  is 
regularly  insured  against  loss  by  fire.  Many  merchants,  ex- 
porters, brokers  or  factors  carry  policies  which  cover  all  the 
cotton  purchased  or  handled  by  them,  the  insurance  compa- 
nies being  notified  each  night  of  the  amount  of  the  day's  pur- 
chases and  sales.  Usually  at  the  end  of  each  month  the  com- 
pany presents  a  bill  for  premiums  based  upon  the  amount 
of  cotton  insured  during  the  month.  Cotton  exported  to 
oversea  countries  is,  moreover,  covered  by  a  marine  in- 
surance policy  from  the  time  that  it  reaches  ship's  side, 
the  premium  to  be  paid  either  by  the  seller  or  buyer  ac- 
cording to  whether  the  cotton  is  sold  on  c.i.f.  or  f.o.b. 
terms. 


Interior  Points  op  Concentration 

While  about  one-half  of  the  cotton  is  shipped  direct  from 
local  shipping  or  compress  points  to  local  mills,  seaports  or  out- 
side destinations,  the  other  half  is  concentrated  at  the  cen- 
tral cotton  markets  of  the  interior,  or  so-called  "interior  points 
of  concentration."  As  shown  on  Map  No.  VI  in  the  preced- 
ing chapter  there  are  thirty-five  or  more  of  these  inland  mar- 
kets the  largest  of  which  from  the  standpoint  of  cotton  receipts 
are  Houston,  Texas;  Memphis,  Tennessee;  St.  Louis,  Mis- 
souri ;  Augusta  and  Atlanta,  Georgia ;  Cincinnati,  Ohio ;  Little 
Rock,  Arkansas;  Montgomery,  Alabama;  Columbia,  South 
Carolina ;  Selina,  Alabama ;  Shreveport,  Louisiana ;  Meridian, 
Mississippi;  and  Dallas,  Texas.  In  the  crop  year  1911-1912 
the  receipts  at  the  twenty-eight  principal  interior  towns  to- 
taled 7,660,000  bales,^  or  about  47  per  cent,  of  the  entire  cot- 
ton crop.  Among  the  interior  markets  are  several  of  the 
"northern  gateways,"  which  are  points  of  concentration  as 
well  as  points  through  which  overland  shipments  pass  in 
transit. 


*  New  York  Cotton  Exchange:   Annual  Report  of  the  Cotton  Crop 
(1911-1912),  p.  17. 


C 


4V 


( . 


CENTRAL  COTTON  MARKETS 


123 


Sources  of  Supply. — A  part  of  the  cotton  received  at  the 
large  interior  markets  is  merely  unloaded  to  be  recompressed, 
but  the  bulk  of  it  is  shipped  there  by  exporting  houses  and 
brokers  for  resale,  and  is  consigned  by  local  merchants  and 
growers  to  the  factors  located  at  these  points  or  is  hauled 
there  by  growers  from  the  surrounding  community.  The 
largest  amount  of  concentration  is  done  by  the  large  exporting 
houses  who  do  not  limit  their  local  purchases  to  orders  on 
hand  but  buy  all  the  cotton  they  are  able  to  obtain  at  current 
prices.  Whatever  they  can  apply  on  contracts  already  booked 
they  ship  direct  to  destination,  and  the  remainder  they  store 
in  the  large  warehouses  at  the  interior  points  of  concentra- 
tion. 

Functions. — The  larger  interior  points  are  not  only  places 
at  which  cotton  is  held  until  it  has  been  sold  for  shipment 
to  spinners  or  foreign  importers,  but  are  central  cotton  mar- 
kets. They  provide  facilities  for  the  storage,  weighing,  com- 
pressing, sampling,  grading  and  inspection  of  cotton.  They 
provide  a  market  for  the  sale  and  resale  of  cotton,  and  it  is 
there  that  cotton  bales  sold  for  shipment  are  '^patched"  as  in 
the  case  of  those  shipped  direct  to  destination  from  local  com- 
presses. At  some  of  the  largest  interior  markets,  cotton  ex- 
changes have  been  organized  and  rules  have  been  laid  down 
for  the  conduct  of  the  spot  cotton  trade.  The  larger  markets 
publish  daily  cotton  prices  which  are  viewed  not  only  by 
the  dealers  at  these  markets,  but  by  spinners  and  outside  cot- 
ton merchants,  by  local  buyers,  and  by  the  growers.  While 
in  the  main  these  prices  follow  the  prices  at  which  future 
contracts  sell  in  New  York,  New  Orleans  and  Liverpool,  they 
do  not  follow  them  when  the  futures  sell  at  an  abnormal 
discount.  In  this  way  the  spot  markets  of  the  larger 
interior  towns,  together  with  those  which  are  at  the  larger 
ports,  sometimes  affect  the  prices  paid  to  the  growers  of 
cotton. 

Extent  of  Competition. — There  is  more  competition  be- 
tween these  central  cotton  markets  than  there  is  between 
the  primary  grain  markets,  for  they  are  more  numerous,  the 
districts  from  which  they  receive  their  supply  are  less  definite, 


H 


124 


AGKICULTURAL  COMMERCE 


and  the  total  supply  of  cotton  is  relatively  smaller.  There 
is,  moreover,  considerable  competition  within  some  of  these 
markets,  the  range  of  buyers  being  wider  than  in  the  primary 
grain  markets. 

Purchase  of  Cotton  from  Growers,  Local  Merchants  and 
Factors. — On  the  important  market  days  nearby  growers  fre- 
quently haul  their  cotton  direct  to  the  cotton  yards  of  the  in- 
terior points  of  concentration  and  sell  it  at  current  prices. 
Growers  as  well  as  country  merchants  located  at  a  distance 
usually  consign  it  to  factors  or  commissionmen  who  may  sell  it 
immediately  or  store  it  in  warehouses  which  are  owned  by  the 
railroads,  cotton  buyers,  warehouse  companies,  or  in  some  cases 
by  cooperative  concerns.  The  factors  usually  obtain  a  com- 
mission of  about  2J  per  cent,  for  buying  or  selling  cotton. 
The  selling  at  some  of  the  central  markets  is  done  in  accord- 
ance with  rules  laid  down  by  the  spot  exchanges  of  which  the 
various  buyers  are  members,  and,  where  no  exchange  has  been 
organized,  the  trading  is  nevertheless  conducted  in  accordance 
with  trade  custom. 

The  cotton  may  be  sold  to  the  central  market  buyers  in 
various  ways:  (1)  Cotton  in  the  yards  or  warehouses  is  sold 
on  the  "spot,''  i.  e.,  samples  are  extracted  from  the  bales  and 
the  sale  is  based  on  them.  (2)  It  may  be  sold  "to  arrive"  in 
which  case  the  cotton  is  sold  at  the  central  market  before  it 
arrives  there  from  the  local  shipping  points.  Such  sales  may 
be  made  on  the  basis  of  samples,  by  grade  or  "description" 
or  by  a  combination  of  both  sample  and  grade.  The  samples 
are  sometimes  guaranteed  by  the  seller,  but  in  any  event  if 
the  cotton  sold  does  not  agree  with  the  samples  or  grades 
provided  by  the  seller,  the  buyer  may  insist  upon  a  readjust- 
ment of  terms  or  under  certain  conditions,  as  provided  by 
the  rules  applicable  in  the  various  markets,  refuse  to  receive 
the  cotton  when  it  arrives.  (3)  Cotton  may  also  be  sold  on 
f.  o.  b.  terms,  for  delivery  either  at  the  central  market  or  at 
a  designated  port.  In  Houston,  Texas,  for  example,  cotton 
may  be  sold  for  delivery  f.  o.  b.  barge  or  railroad  at  Houston 
or  ship  at  Galveston.  When  sold  for  delivery  at  a  point  be- 
yond the  central  market,  the  cotton  is  said  to  be  sold  "in 


CENTRAL  COTTON  MARKETS 


125 


transit."  The  f.o.b.  sale  differs  from  the  usual  "to  arrive" 
sale  in  that  the  latter  requires  the  delivery  of  the  cotton  on 
the  spot  at  the  central  market,  the  seller  paying  all  delivery 
costs,  while  the  former  sale  is  made  at  a  price  which  includes 
delivery  charges.  On  shipments  from  a  local  shipping  point 
an  f.o.b.  sale  requires  the  buyer  to  pay  the  railroad  freight 
rate,  compress  fees,  drayage  and  other  delivery  charges  except 
such  as  may  be  otherwise  agreed  upon  or  provided  for  in  the 
exchange  rules. 

Cotton  Receiving  Ports 


n 


Although  the  principal  cotton-exporting  ports  have  been 
mentioned  in  connection  with  the  export  trade,  it  should  be 
noted  that  the  export  trade  by  no  means  portrays  the  volume 
of  cotton  handled  at  the  various  cotton-receiving  ports.  The 
coastwise  as  well  as  the  cotton-export  trade  is  handled  at  the 
ports.  Some  of  their  receipts  come  direct  from  local  shipping 
or  compress  points,  and  others  from  the  interior  points  of 
concentration.  Some  cotton  passes  through  them  in  transit, 
some  is  placed  in  storage,  some  is  handled  on  through  bills 
of  lading,  some  is  rebilled  at  the  ports,  and  some  is  used  in 
local  mills. 

They  annually  receive  from  70  to  75  per  cent,  or  more  of 
the  total  cotton  crop.  Their  net  receipts — the  amount  of  do- 
mestic cotton  received  which  has  not  been  transshipped  from 
one  port  to  another  and  already  included  in  the  receipts  of 
the  first  receiving  port — comprised  10,189,000  running  bales 
in  the  crop  year  1912-1913  and  10,539,000  in  1913-1914, 
or  about  72  per  cent,  of  the  entire  crop.  The  principal  indi- 
vidual receiving  ports  are  Galveston,  New  Orleans,  Savan- 
nah, Norfolk  and  Newport  News,  Port  Arthur  and  Texas 
City,  Wilmington  (North  Carolina),  Charleston,  San  Fran- 
cisco, Brunswick  and  Mobile.  Certain  of  the  northern 
ports,  such  as  New  York  and  Boston,  from  which  appre- 
ciable quantities  of  cotton  are  yearly  exported,  receive  but 
small  quantities  directly  from  the  interior  of  the  cotton 
belt. 


126 


AGRICULTURAL  COMMERCE 


Functions  of  Receiving  Fort.— First  of  all  the  cotton-re- 
ceiving ports  are  shipping  centers,  and  are  therefore  equipped 
with  docks  and  wharves  where  the  vessels  of  the  world  may 
obtain  the  cotton  which  is  drayed  or  otherwise  conveyed  from 
the  freight  yards  or  from  warehouses  to  the  waterfront.  They 
are  also  points  of  concentration,  for  cotton  is  shipped  to  ports 
as  well  as  to  the  large  interior  towns  to  be  held  for  final  sale 
and  shipment,  and  they  are,  therefore,  equipped  with  ware- 
houses and  cotton  yards.  They  are  cotton  markets  at  which 
all  such  cotton  as  has  not  been  sold  for  shipment  in  the  in- 
terior may  be  bought  and  sold.  Cotton  hauled  there  by  nearby 
farmers,  or  shipped  from  the  interior  by  growers  or  interior 
buyers,  is  disposed  of  by  methods  similar  to  those  prevailing 
at  the  central  markets  of  the  interior.  Being  markets  and 
shipping  centers  they  have  rules  and  facilities  for  the  weigh- 
ing, inspection  and  grading,  sampling,  patching,  tare,  and 
delivery  of  cotton  bales.  At  some  of  them  cotton  exchanges 
have  been  organized  so  that  the  sale  and  handling  of  cotton 
may  be  conducted  in  a  uniform  and  orderly  manner.  As  in 
case  of  the  large  interior  centers,  the  great  exporting  houses 
either  have  branch  offices  or  buying  representatives  at  the  prin- 
cipal receiving  ports. 

With  one  exception  all  the  port  as  well  as  interior  cotton 
exchanges  constitute  spot  markets.  Many  of  the  dealers  at 
these  markets  regularly  hedge  their  cotton  transactions,  but 
they  do  so  on  the  speculative  exchanges  of  New  York,  New 
Orleans  or  Liverpool.  It  is  to  be  noted,  however,  that  one 
of  the  largest  receiving  ports — New  Orleans — is  equipped  with 
an  exchange  where  cotton  futures  as  well  as  spot  cotton  are 
regularly  bought  and  sold. 


Sale  of  Cotton  to  Domestic  Mills 

Manner  of  Sale. — The  northern  cotton  mills  purchase  their 
supply  of  cotton  from  the  export  houses,  brokers  or  other  cot- 
ton merchants  who  obtain  it  at  the  local  markets,  the  interior 
points  of  concentration  (including  certain  northern  gateways) 


CENTRAL  COTTON  MARKETS 


127 


or  at  the  receiving  ports.  These  merchants  usually  have  officer 
in  the  large  northern  cities  and  agents  at  numerous  mill  cen- 
ters; indeed  the  main  offices  of  many  of  the  largest  cotton 
houses  are  in  New  York.  The  mill  treasurers  usually  buy  on 
the  basis  of  samples  which  these  agents  submit  for  inspection 
although  they  sometimes  purchase  by  grade  or  description. 
When  the  cotton  arrives  at  the  mills  it  is  in  many  cases  tested 
by  experts,  and  if  it  is  of  lower  grade  than  the  sample  the 
seller  is  required  to  make  restitution  to  the  mill.^  It  is  im- 
portant that  the  cotton  merchants  deliver  as  nearly  as  possible 
the  exact  quality  of  cotton  purchased,  because  the  mills  are 
engaged  in  the  manufacture  of  yarn,  cloth  or  other  textiles 
requiring  particular  grades  of  cotton.  It  is  for  this  reason 
chiefly  that  the  mills  do  not  purchase  their  supply  on  the  large 
speculative  exchanges,  where  the  grades  do  not  fully  account 
for  length  or  fineness  of  fiber,  and  where  the  contracts  permit 
the  delivery  of  numerous  grades.  They  use  the  speculative 
exchanges  principally  as  a  price  barometer,  and  in  some  cases, 
for  hedging  purposes.  The  methods  of  purchase  in  the  south- 
ern mill  centers  differ  from  those  of  the  northern  mills,  only 
in  that  they  buy  directly  from  cotton  growers  as  well  as  from 
merchants.^ 

Terms  of  Sale. — The  terms  of  the  contract  which  the  north- 
ern inills  enter  into  with  the  cotton  merchants  are  various. 
They  may  contract  for  full  delivery  at  a  specified  time,  or  in 
monthly  instalments.  The  contract  may,  moreover,  require 
delivery  either  on  c.i.f.  or  f.o.b.  terms.  The  former  re- 
quires the  merchant  to  deliver  the  cotton  at  the  mill  for  the 
agreed  price;  while  the  latter,  as  in  the  case  of  shipments  from 
local  points  in  the  South  to  the  central  cotton  markets  of  the 
interior  or  the  ports,  requires  him  to  deliver  it  free  on  board 
railroad  car  or  vessel.  The  spinner,  in  case  of  an  f.o.b.  pur- 
chase is  required  to  pay  all  railroad,  steamship,  compressing, 
insurance  and  other  shipping  charges,  unless  some  of  them  are 
especially  assumed  by  the  merchant  in  the  contract.    At  well- 

*M.  T.  Copeland:    Cotton  Manufacturing  Industry  of   United 
States,  p.  180. 

*See  chap,  v,  p.  106. 


128 


AGRICULTURAL  COMMERCE 


IM 


organized  markets,  f.o.b.  prices  are  regularly  quoted  not  at 
a  fixed  number  of  cents  but  at  a  given  number  of  points  "on" 
the  current  quotation  of  futures. 

The  spinners  may  also  purchase  on  so-called  "spinner's 
call"  terms,  i.  e.,  the  cotton  merchant  allows  the  spinner  to 
call  for  a  specific  grade  of  cotton  at  a  stipulated  number  of 
points  "on"  the  actual  price  of  futures  at  any  time  which  the 
spinner  may  elect  to  name  between  the  making  and  the  ma- 
turity of  the  contract.^  The  actual  price  in  such  a  purchase  is 
not  fixed  until  the  spinner  "calls,"  and  it  is  then  the  price  of 
the  cotton  futures  of  the  month  mentioned  in  the  contract 
plus  an  agreed  number  of  points.  The  spinner  is  usually  re- 
quired to  "call"  at  least  fifteen  days  before  the  shipping 
month. 

Time  of  Sale. — The  northern  spinners  usually  buy 
about  one-half  of  their  annual  supply  before  January  first 
and  over  60  per  cent,  before  February  first.  Most  of  the 
supply,  moreover,  is  shipped  as  soon  as  it  is  purchased,  is 
stored  in  the  private  warehouses  of  the  mills,  and  paid  for 
within  three  days  after  delivery.  Although  the  spinners  can 
insure  the  risk  of  a  change  in  the  price  of  cotton  by  hedging 
on  the  speculative  exchanges,  they  prefer  to  buy  their  supply 
early  and  carry  it  themselves,  rather  than  to  purchase  later 
at  prices  which  ordinarily  include  the  cost  of  storage  in  public 
warehouses,  or  to  run  the  risk  of  being  unable  to  obtain  the 
particular  grade  of  cotton  desired.  The  spinners  of  fine  yarn 
are  especially  apt  to  purchase  early  in  the  season. 

The  time  of  purchase  by  the  southern  mills  varies  more 
widely  than  that  in  the  northern  states.  The  relatively  few 
which  require  long-staple  cotton  follow  the  same  practice  as 
their  northern  competitors.  The  practice  of  those  which  use 
short-staple  cotton  "depends  upon  the  location,  size,  and  fi- 
nancial strength  of  the  individual  mills."  ^  On  the  whole 
they  buy  a  somewhat  smaller  proportion  of  their  supply  during 
the  picking  season,  for  some  of  them  have  less  available  capi- 
tal, and  in  some  places  they  are  able  to  draw  upon  cotton 

*  U.  S.  Bureau  of  Corporations :  Cotton  Exchanges,  Part  I,  p.  106. 
'Copeland:    p.  182. 


CENTRAL  COTTON  MARKETS 


129 


remaining  in  the  hands  of  nearby  growers.  Some  of  the  smal- 
ler mills,  with  very  little  available  capital,  buy  only  as  they 
obtain  orders  for  yarn  or  cloth. 


Sale  of  Cotton  in  Foreign  Markets 


Methods  of  Sale. — The  methods  of  selling  cotton  to  foreign 
buyers  varies  in  each  of  the  three  principal  foreign  markets 
for  American  cotton — Great  Britain,  Germany  and  France.^ 
The  American  cotton  exported  to  Great  Britain  is  mainly  sold 
or  consigned  by  American  exporting  houses  and  brokers  di- 
rectly to  Liverpool  or  Manchester  importing  merchants.  Some 
American  exporters,  however,  have  branch  houses  in  England 
to  handle  their  sales,  and  some  Liverpool  and  Manchester 
houses  send  buying  agents  to  the  large  spot  markets  of  the 
South.  The  Liverpool  importing  merchants  usually  sell  the 
cotton  by  sample  through  two  brokers — a  selling  and  a  buying 
broker — who  stand  between  the  merchants  and  spinners  and 
receive  a  commission  of  ^  per  cent.  each.  Though  Liverpool 
is  the  principal  British  market,  some  of  the  cotton  is  handled 
by  Manchester  importing  merchants,  who  ordinarily  deal  di- 
rectly with  the  spinners. 

American  cotton  used  in  Germany  is  sold  mainly  in 
Bremen,  and  to  a  lesser  extent  in  Hamburg  and  Havre, 
France.  Some  cotton  is  sold  direct  to  German  spinners,  and 
some  is  consigned  to  commissionmen,  but  the  bulk  of  it  is 
sold  to  Bremen  importing  merchants  who  sell  to  the  mills 
through  agents.  The  agents,  who  receive  a  commission  for 
their  services,  usually  represent  several  cotton  merchants  who 
as  far  as  possible  are  non-competing. 

The  leading  French  market  for  American  cotton  is  at 
Havre,  where  the  exporters  usually  sell  either  to  importers  or 
merchants,  the  cotton  in  many  cases  being  sold  to  importers 
who  in  turn  sell  it  to  cotton  merchants.  The  sales  are  made 
through  selling  and  buying  brokers,  and  the  official  quotations 
and  sales  are  recorded  by  so-called  sworn  brokers,  each  of  the 

^Copeland:    pp.  354-360. 


I 


130 


AGRICULTUKAL  COMMERCE 


brokers  receiving  a  commission  of  J  per  cent.  The  cotton  mer- 
chants sell  to  spinners  at  the  mill  centers  through  agents  who 
are  paid  commissions  of  from  J  to  1  per  cent. 

The  cotton  importers  and  merchants  in  each  of  these  coun- 
tries commonly  hedge  their  transactions,  those  of  England  and 
Germany  chiefly  on  the  Liverpool  and  New  York  Exchanges, 
and  those  of  France  chiefly  on  the  Havre  Exchange.  The 
spinners  of  Germany  and  France  also  hedge  in  many  cases, 
while  those  of  England  do  so  less  frequently,  the  difference 
being  due  to  the  fact  that  in  England  the  cotton  supply  is 
held  largely  by  the  importing  merchants,  the  mills  usually 
keeping  but  small  quantities  in  their  own  warehouses,  while 
in  Germany  and  France  as  in  the  United  States  the  spinners 
buy  a  larger  share  of  their  year's  supply  early  in  the  season. 

Terms  of  Sale. — The  sales  by  American  exporters  to  the 
foreign  importers,  merchants  or  mills  are  made  on  contracts 
similar  to  those  entered  into  with  American  spinners,  except 
that  a  larger  proportion  are  made  on  c.i.f.  terms,  and  that 
the  sales  are  based  on  net  instead  of  gross  weight.  The  com- 
mon practice  is  to  require  the  exporter  to  deduct  6  per  cent, 
from  the  invoice  to  cover  tare,  the  cotton  being  sold  on  so- 
called  c.i.f.  and  6  per  cent,  terms. 

The  tare  rules  of  the  various  countries  are  essentially  con- 
fusing and  give  an  element  of  uncertainty  to  the  foreign 
sales.  While  the  flat  gin  bales  of  the  growers  usually  contain 
from  19  to  24  pounds  of  tare,  the  6  per  cent,  rule  practically 
compels  the  exporters  to  add  sufficient  patches  to  increase 
the  tare  of  a  500-pound  compressed  bale  to  30  pounds.  It  is 
owing  to  this  practice  that  the  exporter  is  sometimes  said 
to  make  his  profit  out  of  the  "patches"  which  he  adds  to  the 
bale.  Such  a  profit,  however,  is  indefinite  and  contingent,  for 
competition  may  in  some  cases  require  him  to  share  it  with 
the  grower  or  local  merchant,  and  the  tare  rules  of  the  foreign 
markets  permit  the  foreign  buyer  to  present  a  claim  for  tare 
in  excess  of  fixed  weights  which  are  different  in  the  various 
foreign  markets  but  which  come  roughly  to  about  26^  pounds 
on  a  500-pound  bale.  The  rules  provide  detailed  methods 
for  the  ascertainment  of  actual  tare  by  physical  tests,  and 


CENTRAL  COTTON  MARKETS 


131 


4^ 


\ 


when  such  tests  are  made  the  buyer  may  present  a  claim  for  the 
3 J  pounds  or  other  excess  tare.^  Since  the  making  of  a  physi- 
cal test  requires  time,  the  foreign  buyer,  if  he  is  in  a  hurry  to 
receive  the  cotton,  may  either  waive  a  claim,  or  agree  to  an 
arrangement  providing  for  "friendly  allowances,"  that  is,  the 
buyer  may  agree  to  a  deduction  which  is  smaller  than  the 
actual  over-tare.  If  he  is  not  anxious  to  receive  the  cotton 
quickly  he  will  insist  upon  a  physical  test.  In  order  to  pro- 
tect himself  from  the  possibility  of  loss  resulting  from  the  6 
per  cent,  and  physical  test  rules  applied  in  foreign  markets, 
the  exporter  endeavors  when  possible  "to  take  account  of  the 
value  of  this  discrepancy  of  3J  pounds  in  the  price  that  he 
charges  the  foreign  buyer."  ^ 

C.i.f.  and  6  per  cent,  contracts  sometimes  contain  a  so- 
called  "franchise"  clause,  providing  for  a  guarantee  that  the 
invoice  weights  will  not  exceed  the  weight  of  the  cotton  upon 
arrival  at  the  foreign  market  by  more  than  1  per  cent. 
Weights  frequently  vary  because  of  differences  in  atmospheric 
conditions,  and  if  such  variation  reduces  the  weight  by  more 
than  1  per  cent.,  the  foreign  buyer  may  present  a  claim  for 
the  excess.  Since  the  American  shipper  is  not  allowed  a 
similar  claim  for  an  increase  in  the  weight  of  the  cotton,  he 
in  many  cases  adds  1  per  cent,  to  the  actual  weight  when  he 
makes  out  his  invoice.  Both  the  tare  and  franchise  rules  at 
times  lead  to  serious  abuses  in  the  cotton  trade. 


The  Making  of  Cotton  Prices 

Spinners'  and  Imparters'  Prices.— As  the  prices  paid  to  the 
growers  are  usually  based  upon  the  price  of  future  contracts 
at  the  great  speculative  exchanges,^  so  also  are  the  prices  at 
which  the  cotton  is  sold  to  the  mills  or  foreign  importers  based 
principally  upon  the  price  of  futures.  The  prices  at  which 
the  cotton  is  sold  to  the  domestic  mills  or  in  foreign  markets 

*U.  S.  Bureau  of  Corporations:    Cotton  Tare. 
'Ibid.,  p.  28. 


•Chap.  V,  pp. 


132 


AGRICULTURAL  COMMERCE 


r; 


I 


are  usually  calculated  at  a  certain  number  of  cents  or  points 
"on"  the  price  of  futures  and  the  difference  is  sufficient  to 
cover  all  shipping  and  handling  costs,  uninsured  risks,  and  a 
profit  on  the  transaction.  The  prices  paid  to  the  growers  and 
those  received  from  the  spinners  and  foreign  importers  are 
of  course  inseparably  interdependent,  and  it  is  the  farmer's 
price  which  frequently  bears  these  costs,  uninsured  risks  and 
profits,  because  conditions  of  supply  and  demand  are  often 
favorable  to  the  buyers.  In  order  that  the  cotton  shippers 
may  do  business  profitably  the  difference  between  the  prices 
which  the  growers  receive  and  those  which  the  spinners  or 
foreign  importers  pay  must  be  sufficient  to  cover  all  of  these 
items. 

Cotton  shipping  costs,  which  differ  according  to  the  point 
of  origin  and  destination,  the  manner  of  shipment  and  other 
considerations  may  include  any  or  all  of  the  following  items : 
freights  from  the  interior,  compressing  charges,  ocean  freights, 
fire  and  marine  insurance,  wharfage  and  dock  dues,  storage, 
weighing,  sampling,  and  inspection  fees,  brokerage  and  com- 
missions, exchange  supervision,  weight  fianchise,  foreign  ex- 
change brokerage,  patching  and  repairing  bagging,  interest, 
and  expenses  of  doing  business  such  as  wages,  salaries,  tele- 
graph and  cable  charges. 

The  ocean  freight  rates  vary  widely  from  time  to  time, 
and  have  increased  greatly  since  1911.  In  1912  the  mean 
rates  on  cotton  shipped  to  Liverpool  from  New  Orleans  and 
Savannah  were  52.7  and  45.9  cents  per  100  pounds  re- 
spectively.^ In  1914  during  the  European  War  they  became 
wholly  exorbitant,  but  it  is  likely  that  the  abnormal  increase 
will  not  prove  permanent.  The  railroad  rates  from  the  in- 
terior to  the  ports  range  from  less  than  20  to  over  75  cents 
per  100  pounds,  and  probably  average  from  40  to  45  cents. 
The  mean  coastwise  rates  from  New  Orleans  and  Savannah  to 
New  York  were  25  and  18  cents  respectively  in  1912 ;  and  the 
mean  railroad  rates  from  Memphis  as  a  typical  interior  mar- 
ket, were  42.5  cents  to  New  York  and  47.5  cents  to  Boston.^ 

*U.  S.  Department  of  Agriculture  Year  Book  (1912),  p.  709. 
'Ibid.,  pp.  707-708. 


CENTRAL  COTTON  MARKETS 


133 


1) 


The  total  shipping,  handling  and  trade  costs  on  a  ship- 
ment from  the  interior  of  the  cotton  belt  to  Liverpool  have 
not  until  recently  exceeded  1  cent  a  pound,  although  in  1913, 
largely  because  of  increased  ocean  freight,  they  advanced  to 
IJ  cents  on  shipments  from  some  interior  points.  The  total 
costs  of  a  shipment  from  the  interior  to  northern  mills  usually 
are  somewhat  less  than  those  of  European  shipments.  They 
probably  average  less  than  1  cent  a  pound,  because  of  the 
somewhat  lower  transportation  costs.  The  total  costs  in  the 
sale  of  cotton  direct  from  farmer  to  southern  mill  usually 
do  not  exceed  50  cents  per  bale  of  500  pounds. 

The  main  trade  risks  of  the  cotton  exporter  or  broker  are 
insured  by  hedging,  but  there  may  be  certain  additional  risks 
such  as  his  inability  at  times  to  hedge  with  exactness  and 
uncertainties  resulting  from  tare  and  franchise  rules.  All 
such  uninsured  risks  are  so  far  as  possible  either  deducted 
from  the  farmer's  price  or  added  to  the  spinner's  or  importer's 
price. 

The  Factors  Affecting  Future  and  Central  Market  Prices. 

— The  factors  which  enter  into  the  price  of  future  contracts, 
upon  which  the  farmer's,  spinner's  and  importer's  prices  are 
mainly  based,  are  essentially  the  same  as  those  outlined  in 
connection  with  the  prices  ^  paid  for  grain  at  the  primary 
grain  markets. 

It  is  on  the  great  cotton  exchanges  at  Liverpool,  New  York 
and  New  Orleans  that  a  world's  cotton  price  is  determined. 
It  is  there  that  the  cotton  buyers  and  sellers  of  the  world  con- 
centrate their  judgment  as  to  the  future  supply  of  and  de- 
mand for  cotton.  The  various  factors  of  supply  and  demand 
differ  from  those  mentioned  in  connection  with  the  grain  trade 
only  in  that  the  cotton  trade  is  on  the  whole  more  competi- 
tive, that  the  foreign  cotton  market  is  more  important,  that 
the  trade  in  raw  cotton  is  free  from  tariff  restrictions,  and 
that  the  effect  of  crop  pests  is  more  widely  felt  than  in  the 
grain  trade.  The  extent  of  the  cotton-growing  area  affected 
by  the  boll  weevil  is  shown  in  Map  No.  VI  of  the  preceding 
chapter. 

^  See  chap,  iv,  p.  88 


134 


AGKICULTUKAL  COMMEKCE 


!\ 


The  spot  cotton  prices  paid  in  the  great  spot  markets, 
alike  those  at  Liverpool,  New  York  and  New  Orleans  and 
those  at  other  central  cotton  markets,  usually  follow  the  price 
of  future  contracts.  When,  however,  the  future  prices,  owing 
to  the  right  to  deliver  numerous  grades  on  a  future  contract 
and  the  failure  to  properly  adjust  grade  differences,  or  for 
other  reasons,  sell  at  an  abnormal  discount,  or  when  they  are 
temporarily  affected  abnormally  by  manipulation,  the  spot 
prices  at  the  central  markets  may  become  the  real  gauge  of 
cotton  values.  At  such  times  the  prices  paid  to  the  growers 
and  those  received  from  the  spinners  and  foreign  importers, 
although  based  upon  the  price  of  futures,  are  adjusted  with 
reference  to  the  spot  prices  paid  in  the  leading  central  mar- 
kets. 

BIBLIOGKAPHY 

Arnold,  J.  J.  "Financing  Cotton,"  Journal  American  Banhers 
Association  (Jan.,  1911),  pp.  414-418. 

Financing  of  Cotton  in   The  Annals  of  the  American 

Academy  of  Political  and  Social  Science  (Sept.,  1911), 
pp.  281-292. 

*BuRKETT,  C.  W.,  and  Poe,  C.  H.     Cotton,  Section  3  (1906). 

CoNANT,  Luther.  The  United  States  Cotton  Futures  Act, 
American  Economic  Review  (Mar.,  1915),  pp.  1-11. 

CoPELAND,  M.  T.  Cotton  Manufacturing  Industry  of  the  United 
States  (1913). 

Hammond,  M.  B.    The  Cotton  Industry  (1897),  Vol.  I. 

*Marsh,  a.  R.  Cotton  Exchanges  and  Their  Economic  Func- 
tions, The  Annals  of  the  American  Academy  of  Political 
and  Social  Science  (Sept.,  1911),  pp.  253-281. 

*PowELL,  G.  H.     Cooperation  in  Agriculture  (1913),  chap  7. 

*New  Orleans  Cotton  Exchange:  Annual  Report  of  Secretary 
on  the  Cotton  Crop  (annual). 

*New  York  Cotton  Exchange:  Annual  Report  on  the  Cotton 
Crop  (annual).  • 

*United  States  Bureau  of  Corporations:  Cotton  Exchanges 
(1909). 

* Cotton  Tare  (1912). 

^United  States  Bureau  of  Crop  Estimates  (Department  of  Agri- 
culture) :  The  Agricultural  Outlook  (formerly  The  Crop 
Reporter),  issued  currently  as  Farmers'  bulletins.     la 


CENTRAL  COTTON  MARKETS 


135 


If 


May,  1915,  title  was  changed  to  The  Monthly  Crop 
Report. 

•United  States  Bureau  of  Crop  Estimates  (Department  of 
Agriculture) :  The  Cotton  Crop  Surplus,  Farmers'  Bul- 
letin No.  641  (Nov.  23,  1914),  pp.  9-12. 

* Cost  of  Producing  Cotton,  Ihid.,  pp.  12-14. 

* Production  of  Upland  Long   Staple  Cotton,  Farmers' 


Bulletin  No.  651  (Feb.  6,  1915),  pp.  12-13. 

United  States  Bureau  of  Foreign  and  Domestic  Commert?e 
(Department  of  Commerce) :  Monthly  Summary  of 
Commerce  and  Finance  (monthly). 

Statistical  Abstract  of  United  States  (annual). 

• United  States  Commerce  and  Navigation  Report  (an- 
nual). 

*United  States  Bureau  of  Plant  Industry  (Department  of  Ag- 
riculture) :  "The  Classification  and  Grading  of  Cotton," 
Farmers'  Bulletin  No.  591  (July  10,  1914). 

* "The  Relation  of  Cotton  Buying  to  Cotton  Growing," 

Bulletin  No.  60  (Feb.  16,  1914). 
-"Varieties  of  American  Upland  Cotton,"  Bulletin  No. 


163  (1910). 

United  States  Bureau  of  Statistics  (Department  of  Commerce), 
Monthly  Summary  of  Commerce  and  Finance  (Decem- 
ber issues  for  years  1905-1911). 

*United  States  Census  Office:  Bulletin  on  Cotton  Production 
(annual). 

* Bulletin  on  Supply  and  Distribution  of  Cotton   (an- 
nual). 
-Thirteenth  Census,  Agriculture,  1910,  Vol.   5   (1913), 


pp.  680-684. 

*United  States  Department  of  Agriculture:  Improved  Meth- 
ods of  Handling  and  Marketing  Cotton  (1913),  in  Year 
Book  for  1912,  pp.  443-462. 

*United  States  Industrial  Commission:  Distribution  of  Farm 
Products,  Vol.  6,  part  III   (1901). 

*United  States  Experiment  Station  (Department  of  Agricul- 
ture) :     The  Cotton  Plant,  Bulletin  No.  33  (1896). 

United  States  Tariff  Board:  Report  on  Cotton  Manufactures 
(1912). 

*  Beferences  designated  by  *  apply  also  to   chap.  v. 


CHAPTER   VII 

RELATIONS    BETWEEN    SPECULATIVE    EXCHANGES    AND 
THE   SALE   OF   FARM   PRODUCE 

One  of  the  most  striking  characteristics  of  the  trade  in 
farm  products  during  the  last  sixty-five  years  has  been  the 
organization  of  exchanges,  and  as  the  greatest  produce  ex- 
changes are  those  in  the  grain  and  cotton  trades,  they  may 
conveniently  be  discussed  at  this  point  in  the  organization  of 
the  trade  in  farm  products.  Exchanges  are  not,  however, 
confined  to  the  grain  and  cotton  trades.  Flour,  provisions, 
flaxseed,  timothy,  clover  and  other  grass  and  field  seeds,  hay 
and  straw,  hops,  and  similar  farm  commodities  are  commonly 
bought  and  sold  on  the  grain  exchanges;  cottonseed  products 
are  dealt  in  on  some  of  the  cotton  and  grain  exchanges;  and 
some  produce  exchanges  have  branched  out  into  non-agricul- 
tural commodities.  The  New  York  Produce  Exchange  for  in- 
stance has  rules  for  the  purchase  and  sale  of  petroleum,  oils, 
waxes  and  fats,  and  pig  iron,  although  there  is  relatively  little 
exchange  trading  in  these  commodities.  Other  agricultural  in- 
dustries in  which  exchanges  have  been  organized  are  the  live- 
stock,^ wool,^  tobacco,^  milk,  fruit*  and  vegetable  industries, 
and  special  exchanges  have  likewise  been  organized  for  the  pur- 
chase and  sale  of  certain  semi-agricultural  commodities  such 
as  dairy  products,  green  coffee  and  raw  sugar. 

In  one  sense  there  is  speculation  in  the  purchase  and  sale 
of  practically  all  agricultural  staples  whether  on  exchanges  or 
otherwise,  for  many  dealers  and  manufacturers  and  an  in- 
creasing number  of  growers  purchase  or  sell  when  in  their 

*Chap.  ix,  p.  188. 
*Chap.  X,  p.  216. 
*Chap.  xi,  p.  231. 
*Chap.  xii,  p.  256. 

136 


SPECULATION  IN  FARM  PRODUCTS 


Idrf 


judgment  the  prices  are  the  most  favorable  to  their  particular 
purposes.  The  term  "speculation"  when  applied  to  produce 
exchanges,  however,  has  a  narrower  and  more  specialized 
meaning,  i.  e.,  it  refers  to  the  purchase  and  sale  of  contracts 
for  future  delivery  or  so-called  "futures."  In  this  sense  the 
exchanges  are  known  either  as  "spot"  or  speculative  exchanges, 
the  former  confining  their  activities  solely  to  a  spot  or  "cash" 
business  and  the  latter  providing  rules  for  the  purchase  and 
sale  of  contracts  for  future  delivery  as  well  as  of  spot  produce. 
Among  the  purely  agricultural  industries  it  is  mainly  in  the 
sale  of  wheat,  oats,  corn,  flaxseed,  and  cotton  that  a  regular 
trade  in  "futures"  is  conducted. 

Organization  of  Speculative  Produce  Exchanges 

Speculative  Grain  Exchanges. — In  the  United  States, 
modern  grain  exchanges  began  to  be  organized  in  the  later 
forties  of  the  nineteenth  century.  The  Chicago  Board  of 
Trade  was  organized  in  1848,  the  New  York  Produce  Ex- 
change in  1850,  the  St.  Louis  Merchants'  Exchange  in  1854,^ 
the  Kansas  City  Board  of  Trade  in  1869,  and  the  Minneapo- 
lis Chamber  of  Commerce  in  1881.  Grain  exchanges  have 
also  been  organized  in  Duluth,  Milwaukee,  Omaha,  Toledo, 
Detroit,  Buffalo,  Philadelphia,  Baltimore,  Boston,  and  in 
nearly  all  the  remaining  primary  and  seaboard  grain  markets 
of  the  United  States.  Practically  all  the  large  grain  ex- 
changes conduct  future  as  well  as  cash  grain  transactions. 

In  Europe,  the  Antwerp  Bourse  was  organized  as  a  mod- 
ern cash  grain  exchange  as  early  as  the  middle  of  the  sixteenth 
century.^  The  number  of  foreign  exchanges,  however,  where 
grain  futures  are  bought  and  sold,  is  limited,  the  principal 
foreign  speculative  grain  exchanges  being  at  Winnipeg,  Liver- 
pool, Paris  and  Budapest.  There  is  some  speculation  on  the 
Berlin  grain  exchange  but  the  sale  of  grain  futures  there  as 
elsewhere  in  Germany  is  hampered  by  law. 

*  Year  when  it  assumed  functions  of  a  grain  exchange. 
'S.  S.  Huebner:  in  the  Annals  of  the  American  Academy  of  Polit- 
ical and  Social  Science,  Sept.,  1911,  p.  1. 


r 

.11 

h':, 


'  I 


138 


AGBICULTUKAL  COMMERCE 


Speculative  Cotton  Exchanges.— The  Liverpool  Cotton 
Association  was  organized  in  1842,  the  New  York  Cot- 
ton Exchange  in  1870,  and  the  New  Orleans  Cotton  Exchange 
in  1871.  A  limited  volume  of  futures  is  also  sold  on  the 
Havre  and  Hamburg  cotton  exchanges,  but  most  of  the  organ- 
ized speculation  in  cotton  is  conducted  on  the  great  exchanges 
at  Liverpool,  New  York  and  New  Orleans.  Trading  on  the 
Bremen  Cotton  Exchange,  which  is  the  leading  German  cot- 
ton market,  is  confined  to  spot  transactions,  and  the  specula- 
tion in  futures  at  Hamburg  is  limited,  for  the  sale  of  cotton 
futures  in  Germany  is  legally  restricted  to  contracts  "for 
actual  delivery.''  One  of  the  reasons,  likewise,  why  none  of 
the  cotton  exchanges^  located  in  the  American  cotton  belt, 
with  the  exception  of  the  New  Orleans  Cotton  Exchange,  are 
future  markets,  is  that  the  sale  of  cotton  futures  is  legally 
prohibited  in  many  of  the  southern  cotton  states. 

Corporate  and  Business  Organization. — With  a  few  ex- 
ceptions such  as  the  Kansas  City  Board  of  Trade  which  is  a 
voluntary  association,  the  large  grain  and  cotton  exchanges 
of  the  United  States  are  regularly  incorporated  associations. 
They  have  the  usual  corporate  officials,  such  as  a  president, 
one  or  more  vice-presidents,  a  secretary  and  treasurer,  and  a 
board  of  directors  or  managers.  Members  of  the  exchanges 
hold  certificates  of  membership  which  upon  payment  of  the 
required  transfer  fee  are  transferable  to  any  person  eligible  to 
membership  who  is  not  opposed  by  the  board  of  directors. 
The  holder  of  such  a  certificate  is  said  to  hold  a  seat  on  the 
exchange.  While  the  methods  of  election  to  membership  vary 
the  rules  of  the  Chicago  jgoard  of  Trade  are  perhaps  typical. 
These  rules  provide  that: 

Any  male  person  of  good  character  and  credit,  and  of  legal 
age,  on  presenting  a  written  application  indorsed  by  two  mem- 
bers, and  stating  the  name  and  business  association  of  the  ap- 
plicant, after  ten  days'  notice  of  such  application  shall  have 

*Spot  cotton  exchanges  have  been  organized  at  Houston,  Mem- 
phis, Little  Rock,  Augusta,  Charleston,  Galveston,  Mobile,  Natchez, 
Vicksburg,  Savannah,  Selina,  Shreveport,  St  Louis,  Norfolk  and 
Portsmouth. 


SPECULATION  IN  FARM  PRODUCTS 


1S9 


been  posted  on  the  bulletin  of  the  exchange,  may  be  admitted 
to  membership  upon  approval  by  at  least  ten  affirmative  ballot 
votes  of  the  board  of  directors,  provided  that  three  negative 
ballot  votes  are  not  cast  against  such  applicant,  and  upon  pay- 
ment of  an  initiation  fee  of  ten  thousand  dollars,  or  on  pre- 
sentation of  an  unimpaired  or  unforfeited  membership,  duly 
transferred,  and  by  signing  an  agreement  to  abide  by  the  rules, 
regulations  and  by-laws  of  the  association,  and  all  amendments 
that  may  be  made  thereto. 


The  membership  of  any  large  grain  or  cotton  exchange 
comprises  a  wide  range  of  business  men  who  are  interested 
in  the  purchase,  sale,  storage,  elevation,  shipment,  exportation, 
manufacture,  insurance,  transportation  or  financing  of  the 
commodities  dealt  in  on  the  exchange.^ 

In  order  to  conduct  their  business  expeditiously  the  ex- 
changes are  equipped  with  numerous  committees.  Each  ex- 
change has  an  arbitration  committee  to  adjust  disputed 
claims  between  members,  and  a  committee  of  appeals  to  re- 
view such  cases  as  may  be  appealed  from  the  arbitration  com- 
mittee. Though  the  exchanges  differ  as  to  their  other  com- 
mittees they  ordinarily  have  committees  for  complaints,  fi- 
nance, floor,  membership,  trade  or  rules,  transportation, 
house,  information  and  statistics,  law,  real  estate  or  rooms  and 
fixtures,  and  quotations.  They  may  also  have  committees, 
bureaus  or  departments  to  supervise  or  perform  specific  duties 
in  connection  with  weighing,  inspection,  sampling  and  grad- 
ing, inspection  of  elevators  or  warehouses,  registration  of 
warehouse  receipts  and  other  special  matters.  Exchanges  on 
which  various  commodities  are  bought  and  sold  may  have 
special  committees,  bureaus  or  departments  in  charge  of  the 
trade  in  particular  commodities  such  as  grain,  provisions  or 
flour. 

An  important  link  in  the  organization  of  some  of  the 
speculative  exchanges  is  the  clearing  house  in  which  contract 
margins  are  cleared  at  the  close  of  each  day's  business  session. 

*For  membership  of  New  York  Produce  Exchange  see  The  An- 
nals of  the  American  Academy  of  Political  and  Social  Science,  Sept., 
1911,  p.  218. 


M 


140 


AGRICULTURAL  COMMERCE 


In  order  to  protect  both  parties  to  a  future  contract  the  ex- 
changes authorize  the  buyer  and  seller  to  require  the  deposit 
with  some  designated  exchange  official,  approved  bank  or 
clearing  house  of  a  margin  equivalent  to  10  per  cent,  or  other 
proportion  of  the  market  price.  The  concerns  which  have 
become  members  of  the  clearing  house,  instead  of  calling 
upon  each  other  individually  for  margins,  may  settle  with 
the  clearing  house  at  a  certain  time  each  day  after  all  their 
various  trades  have  been  checked. 

The  produce  exchanges  do  not  themselves  deal  in  grain, 
cotton  or  other  farm  staples,  all  buying  and  selling  being  done 
by  the  individual  members.  The  exchanges  merely  provide 
the  trading  rules,  supervise  the  trading  in  various  ways,  pro- 
vide rooms  where  it  may  be  conducted,  adjust  disputes  and 
perform  various  other  necessary  functions.  The  income  of 
the  exchanges  is  not  derived  from  the  purchase  or  sale  of 
cotton  or  grain  by  them,  but  from  rents,  buildings,  invest- 
ments, membership  dues,  the  sale  of •  price  quotations  or  sim- 
ilar sources,  and  in  some  instances  from  inspection  or  other 
fees  for  services  rendered. 


Future  Contracts 

Since  a  produce  exchange  is  said  to  be  a  speculative  ex- 
change if  it  authorizes  the  sale  of  future  contracts  it  is  de- 
sirable to  define  and  describe  such  so-called  "future"  transac- 
tions somewhat  more  fully. 

Definition  of  Future  Contracts.— As  is  stated  by  the 
United  States  Bureau  of  Corporations,  "the  system  of  future 
trading  in  cotton,  and,  for  that  matter  in  other  staples  sim* 
ilarly  dealt  in,  is  based  on  contracts  on  the  part  of  the  seller 
to  deliver,  and,  consequently,  on  the  part  of  the  buyer  to  re- 
ceive, at  a  time  subsequent  to  the  making  of  the  contract,  a 
certain  quantity  of  the  product  at  a  stipulated  price.  ...  A 
future  transaction  differs  from  a  'spot'  transaction  in  that 
the  latter  invariably  represents  goods  actually  on  hand  or  in- 
stantly available  at  the  time  the  contract  is  made,  and,  more- 


SPECULATION  IN  FARM  PRODUCTS 


141 


over,  contemplates  an  immediate  or  an  approximately  imme- 
diate delivery."  ^ 

Future  contracts  are  entered  into  not  only  on  the  specula- 
tive cotton  and  produce  exchanges,  but  privately  in  nearly 
every  line  of  business.  A  farmer  may  privately  contract  to 
deliver  a  given  number  of  bushels  of  potatoes  at  a  specified 
price  and  at  a  stated  time  in  the  future,  a  miller  may  similarly 
contract  to  deliver  flour,  a  steel  mill  to  deliver  rails  or  plates, 
a  contractor  to  complete  a  building.  Strangely,  such  contracts 
when  privately  made  are  not  regarded  as  speculative.  The 
cotton  and  grain  exchanges  have  adopted  definite  future  con- 
tracts for  use  in  speculative  transactions  and  definite  rules 
which  their  members  are  required  to  follow. 

The  official  future  cotton  contract  of  the  New  Orleans  Cot- 
ton Exchange  for  example,  is  as  follows : 

CONTRACT 

New  Orleans, ,19 

In  consideration  of  one  dollar  in  hand  paid,  receipt  of  which 

is  hereby  acknowledged of  the  City  of  New 

Orleans,  State  of  Louisiana,  have  this  day  sold  to  (or  bought 

from)    of  the  City  of  New  Orleans,  State 

of  Louisiana,  50,000  pounds,  in  about  100  square  bales  of  cot- 
ton, growth  of  the  United  States,  deliverable  from  approved 
storage  places  for  cotton  in  the  port  of  New  Orleans,  between 

the  first  and  last  days  of next,  inclusive,  excepting 

holidays  as  provided  in  Rule  40  of  the  Rules  of  the  New  Or- 
leans Cotton  Exchange  for  the  transaction  of  the  Future  Con- 
tract business. 

The  delivery  within  such  time  to  be  at  seller's  option,  in  not 
more  than  two  approved  storage  places,  upon  five  business  days' 
notice  to  the  buyer,  as  provided  by  the  Rules  of  the  New  Or- 
leans Cotton  Exchange. 

The  cotton  to  be  dealt  with  herein  or  delivered  hereunder 
shall  be  of,  or  within,  the  grades  for  which  standards  are  estab- 
lished by  the  Secretary  of  Agriculture,  except  cotton  prohibited 
from  being  delivered  on  a  contract  by  the  fifth  subdivision  of 
Section  6  of  the  United  States  Cotton  Futures  Act,  and  no 
other  grade  or  grades   (subject  to  the  United  States   Cotton 

*  Report  on  Cotton  Exchanges :    Part  I,  p.  36. 


I 


142 


AGEICULTUEAL  COMMERCE 


SPECULATION  IN  FARM  PRODUCTS 


143 


Futures  Act,  Section  5,  and  subject  to  New  Orleans  Cotton 

Exchange  inspection  and  classification)  at  the  price  of 

cents  per  pound  for  Middling. 

In  case  cotton  of  grade  other  than  the  basis  grade  should 
be  delivered  or  tendered  in  settlement  of  this  contract,  the  dif- 
ferences above  or  below  the  contract  price  which  the  receiver 
shall  pay  for  such  grades,  other  than  the  basis  grade,  shall  be 
the  actual  commercial  differences  determined  as  provided  in 
Section  6  of  the  United  States  Cotton  Futures  Act. 

Either  party  shall  have  the  right  to  call  for  a  margin  as  the 
variations  of  the  market  for  like  deliveries  may  warrant  and 
which  margin  shall  be  kept  good. 

This  contract  is  made  in  view  of,  and  in  all  respects  subject 
to,  the  United  States  Cotton  Futures  Act,  Section  5,  and  to 
the  By-Laws,  Rules  and  conditions,  not  in  conflict  therewith, 
established  by  the  New  Orleans  Cotton  Exchange. 

Signed 

The  "Cotton  Futures  Act"*  of  August  18,  1914,  regulates 
the  form  of  the  cotton  futures  dealt  in  on  American  cotton  ex- 
changes by  providing  that  a  tax  of  two  cents  per  pound  of  cotton 
must  be  paid  unless  actual  delivery  is  made  or  unless  the  con- 
tract conforms  to  the  following  specified  conditions :' 

(a)  It  must  be* in  writing  plainly  stating  the  terms  of 
such  contract  and  must  conform  to  the  rules  and  regulations 
made  pursuant  to  the  act. 

(b)  Names  and  addresses  of  the  seller  and  buyer  must  be 
specified. 

(c)  It  must  be  signed  by  the  party  to  be  charged  or  by  his 
agent  in  his  behalf. 

(d)  It  must  specify  the  quantity  of  the  cotton  involved  in 
bales  or  in  pounds. 

(e)  It  must  specify  the  basis  grade  for  the  cotton  involved 
in  the  contract,  which  shall  be  one  of  the  grades  for  which 
standards  are  established  by  the  Secretary  of  Agriculture, 
except  grades  prohibited  from  being  delivered.  Middling  shall 
be  deemed  the  basis  grade  incorporated  into  the  contract  if  no 
other  basis  grade  be  specified  in  the  contract. 

(f )  It  must  set  out  the  price  per  pound  at  which  the  cotton 
of  such  basis  grade  is  contracted  to  be  bought  or  sold. 

(g)  It  must  state  the  date  when  the  purchase  or  sale  was 

*  See  Appendix  A,  Sections  3,  4,  5,  10. 

*  As  analyzed  in  New  York  Journal  of  Commerce,  Feb.  18,  1915. 


made  and  the  month  or  months  in  which  the  contract  is  to  be 
fulfilled  or  settled. 

(h)  It  must  provide  that  the  cotton  dealt  with  therein  or 
delivered  thereunder  shall  be  of  or  within  the  grades  for  which 
standards  are  established  by  the  Secretary  of  Agriculture,  ex- 
cept grades  prohibited  from  being  delivered  on  a  contract. 

(i)  It  must  provide  that  in  case  cotton  of  grade  other  than 
the  basis  grade  be  tendered  or  delivered  in  settlement,  the  differ- 
ences above  or  below  the  contract  price  which  the  receiver 
shall  pay  for  such  grades  other  than  the  basis  grade  shall  be 
the  actual  commercial  differences,  determined  as  prescribed 
by  the  act. 

(j)  It  must  provide  that  cotton  of  the  following  descrip- 
tions shall  not  be  delivered  on,  under,  or  in  settlement  of  the 
contract : 

1.  Cotton  that  because  of  the  presence  of  extraneous  matter 
of  any  character  or  irregularities  or  defects  is  reduced  in  value 
below  that  of  good  ordinary. 

2.  Cotton  that  is  below  the  grade  of  good  ordinary. 

3.  If  tinged,  cotton  that  is  below  the  grade  of  low  mid- 
dling; or,  if  stained,  cotton  that  is  below  the  grade  of  middling. 

4.  Cotton  that  is  less  than  seven-eighths  of  an  inch  in  length 
of  staple,  or  cotton  of  perished  or  immature  staple. 

5.  Cotton  that  is  "gin  cut"  or  reginned,  or  cotton  that  is 
"repacked,"  or  "false  packed,"  or  "mixed  packed,"  or  "water 
packed." 

(k)  It  must  provide  that  all  tenders  of  cotton  shall  be  the 
full  number  of  bales  involved  therein.  (Such  variations  of  the 
number  of  bales  may  be  permitted  as  is  necessary  to  bring  the 
total  weight  of  the  cotton  tendered  within  the  provisions  of  the 
contract  as  to  weight,  and  necessary  variations  in  the  weight  of 
the  cotton  tendered  may  be  permitted,  not  to  exceed  1  per  cent, 
of  the  total  weight  specified  in  the  contract.) 

(1)  It  must  provide  that  on  the  fifth  business  day  prior 
to  delivery  the  person  making  the  tender  shall  give  to  the  per- 
son receiving  the  same  written  notice  of  the  date  of  delivery, 
and  that  on  or  prior  to  the  date  so  fixed  for  delivery,  and  in 
advance  of  final  settlement,  the  person  making  the  tender  shall 
furnish  to  the  person  receiving  the  same  a  written  notice  or 
certificate  stating  the  grade  of  each  individual  bale  to  be  de- 
livered and  identifying  each  bale  with  its  grade  by  means  of 
marks  or  numbers. 


f 


144 


AGRICULTURAL  COMMERCE 


(m)  It  must  provide  that,  in  case  a  dispute  arises  between 
the  person  making  the  tender  and  the  person  receiving  the 
same  as  to  the  quality,  or  the  grade,  or  the  length  of  staple, 
of  any  cotton  tendered  under  the  contract,  either  party  may 
refer  the  question  to  the  Secretary  of  Agriculture  for  deter- 
mination, and  that  such  dispute  shall  be  referred  and  deter- 
mined, and  the  costs  thereof  fixed,  assessed,  collected,  and  paid 
in  such  manner  and  in  accordance  with  such  rules  and  regula- 
tions as  may  be  prescribed  by  the  Secretary  of  Agriculture. 

The  contracts  and  rules  of  the  New  York  and  New  Or- 
leans exchanges  have  been  changed  in  an  endeavor  to  con- 
form to  the  requirements  of  the  statute.  Persons  in  the 
United  States  are,  however,  in  practice  usually  prohibited 
from  dealing  in  futures  on  the  Liverpool  or  other  foreign 
cotton  exchanges,  because  the  act  similarly  applies  the  two- 
cent  tax  to  foreign  contracts  unless  they  conform  to  certain 
conditions  prescribed  in  the  act,  or  actual  delivery  of  cotton 
is  made.  Section  11,  to  which  foreign  exchanges  have  not 
thus  far  seen  fit  to  conform,  is  as  follows : 

Sec.  11.  That  upon  each  order  transmitted,  or  directed 
or  authorized  to  be  transmitted,  by  any  person  within  the 
United  States  for  the  making  of  any  contract  of  sale  of  cotton 
grown  in  the  United  States  for  future  delivery  in  cases  in 
which  the  contract  of  sale  is  or  is  to  be  made  at,  on,  or  in 
any  exchange,  board  of  trade  or  similar  institution  or  place  of 
business  in  any  foreign  country,  there  is  hereby  levied  an 
excise  tax  at  the  rate  of  2  cents  for  each  pound  of  the  cotton  so 
ordered  to  be  bought  or  sold  under  such  contract :  PROVIDED, 
That  no  tax  shall  be  levied  under  this  Act  on  any  such  order  if 
the  contract  made  in  pursuance  thereof  comply  either  with 
the  conditions  specified  in  the  first,  second,  third,  fourth,  fifth, 
and  sixth  subdivisions  of  section  five,  or  with  all  the  conditions 
specified  in  section  ten  of  this  act,  except  that  the  quantity 
of  the  cotton  involved  in  the  contract  may  be  expressed  therein 
in  terms  of  kilograms  instead  of  pounds. 

The  official  future  wheat  contract  of  the  New  York  Pro- 
duce Exchange  is  as  follows  : 


SPECULATION  IN  FARM  PRODUCTS  145 

New  York, .19.... 

In  consideration  of  one  dollar  in  hand  paid,  the  receipt  of 

which  is  hereby  acknowledged   have  this 

day  sold  to or  bought  of 

bushels  of  Contract  Wheat,  which  shall  be  either  No.  2  Red 
Winter  Wheat,  No.  2  Hard  Winter  Wheat,  No.  1  Northern 
Spring  Wheat,  No.  1  Hard  Spring  Wheat,  or  (at  a  discount  of 
two  cents  per  bushel  from  contract  price)  No.  2  White  Winter 
Wheat,  or  (at  a  discount  of  five  cents  per  bushel  from  contract 
price)  No.  3  Red  Winter  Wheat,  No.  3  Hard  Winter  Wheat, 
or  No.  2  Northern  Spring  Wheat.   New  York  Inspection,  at 

•  •  • cents  per  bushel  of  60  lbs.,  deliverable  at  seller's 

(or  buyer's)  option  19 

This  contract  is  made  in  view  of,  and  in  all  respects  sub- 
ject to,  the  By-Laws  and  Rules  established  by  the  New  York 
Produce  Exchange,  in  force  at  this  date. 

Signed .> 


The  future  contracts  which  are  regularly  dealt  in  on  the 
speculative  exchanges,  are  sold  by  months  of  delivery  and 
future  prices  are  regularly  quoted.  Thus  a  statement  that 
"May  wheat"  sells  at  $1.00  per  bushel  means  that  future  con- 
tracts calling  for  delivery  iu  May  are  selling  at  that  price,  the 
delivery  to  be  made  at  any  time  between  the  first  and  last  days 
of  May.  The  standard  unit  for  speculative  grain  transactions 
is  5,000  bushels,  and  when  a  broker  desires  to  trade  in  larger 
amounts  he  offers  or  bids  for  '10,''  "20,"  "50,"  "100,"  or 
other  quantity,  meaning  10,000  or  20,000,  etc.,  bushels.  '  Cot- 
ton futures  ^re  likewise  sold  in  standard  units  of  "50,000 
pounds  in  about  100  square  bales." 

Cotton  Futures  are  Basis  Contracts.— Future  contracts  as 
sold  on  the  speculative  exchanges  are  not  specific  contracts 
obliging  the  seller  to  deliver  a  particular  lot  of  cotton  or  bin 
of  grain,  or  even  a  particular  grade  of  cotton  or  grain.  They 
are  "basis"  contracts.  The  price  of  cotton  futures  is  based 
upon  "middling"  cotton,  but  the  buyer  is  not  obliged  to  deliver 
that  particular  grade.  He  may  deliver  numerous  other 
higher  or  lower  grades,  the  number  of  deliverable  grades 
varying  on  the  different  exchanges,  although  those  of  Ameri- 
can exchanges  are  restricted  by  the  "Cotton  Futures  Act." 


146 


AGRICULTUKAL  COMMERCE 


According  as  he  delivers  higher  or  lower  grades  than  "mid* 
dling"  cotton  certain  additions  to  or  deductions  from  the  con- 
tract price  are  made. 

Cotton  (xrade  Differences. — Such  additions  or  deductions 
to  the  contract  price  of  cotton  futures  are  based  upon  "grade 
differences"  established  in  accordance  with  the  rules  of  the 
cotton  exchanges  and  the  provisions  of  the  "Cotton  Futures 
Act^'  of  August  18, 1914.  In  New  Orleans  the  so-called  "com- 
mercial-difference'^ system  has  prevailed  for  many  years.  Be- 
fore the  Cotton  Futures  Act  was  in  effect  an  exchange  com- 
mittee established  the  difference  between  middling  and  each 
of  the  other  deliverable  grades  daily  by  establishing  the  official 
spot  quotations  for  the  New  Orleans  market.  Grade  differ- 
ences in  New  Orleans  were,  therefore,  based  directly  upon  the 
current  price  at  which  the  various  grades  of  spot  cotton  were 
selling  in  that  market.  In  Liverpool  the  method  of  estab- 
lishing grade  differences  is  similar  to  that  which  was  employed 
in  New  Orleans  in  that  they  are  also  based  upon  the  relative 
commercial  values  of  spot  cotton.  Instead  of  having  a  com- 
mittee, however,  which  meets  each  day  to  establish  official 
spot  quotations,  the  Liverpool  Exchange  provides  a  panel  of 
eighteen  arbitrators,  two  members  of  which  fix  an  appraisal 
or  valuation  relative  to  middling  whenever  any  cotton  is  ten- 
dered on  a  future  contract.  The  New  York  Cotton  Exchange 
for  many  years  adhered  to  the  so-called  "fixed-difference  sys- 
tem,'' an  exchange  committee  fixing  the  grade  differences  but 
once,  twice  or  three  times  a  year.  This  method  sometimes 
resulted  in  the  arbitrary  fixing  of  differences  and  between  the 
sessions  of  the  revision  committee  the  grade  differences  for 
delivery  on  future  contracts  sometimes  were  not  in  harmony 
with  the  actual  value  of  the  various  grades  of  spot  cotton. 
In  1914  the  New  York  Exchange  therefore  adopted  a  plan 
of  monthly  revision  of  grade  differences,  and  instructed  its 
revision  committee  to  take  into  account  as  nearly  as  prac- 
ticable the  quotations  which  they  obtained  from  the  southern 
spot  cotton  markets.^     The  revised  plan  which  was  to  have 

*A.  E.  Marsh:    **Tlje  New  Rules  of  the  New  York  Cotton  Ex- 
change,*' Textile  Manufacturers*  Journal,  May  2,  1914,  pp.  79-83. 


SPECULATION  IN  FARM  PRODUCTS 


147 


become  effective  in  full  on  December  1,  1914,  was  adopted 
largely  because  of  the  disturbing  effect  of  the  fixed-difference 
method  upon  cotton  hedging,  and  because  of  frequent  charges 
in  Congress  and  elsewhere  that  the  New  York  market  did  not 
fairly  reflect  the  world's  price  for  cotton.  Meanwhile,  how- 
ever, the  Cotton  Futures  Act  was  enacted  and  caused  the 
New  York  Cotton  Exchange  to  further  revise  its  methods  of 
establishing  grade  differences. 

Section  6  of  this  act,  effective  February  18,  1915,  requires 
all  American  cotton  exchanges  to  establish  their  contract 
grade  differences  in  accordance  with  the  following  provisions : 


Sec.  6.  That  for  the  purposes  of  section  five  of  this  act 
the  differences  above  or  below  the  contract  price  which  the 
receiver  shall  pay  for  cotton  of  grades  above  or  below  the  basis 
grade  in  the  settlement  of  a  contract  of  sale  for  the  future 
delivery  of  cotton  shall  be  determined  by  the  actual  com- 
mercial differences  in  value  thereof  upon  the  sixth  business 
day  prior  to  the  day  fixed,  in  accordance  with  the  sixth  sub- 
division of  section  five,  for  the  delivery  of  cotton  on  the  con- 
tract, established  by  the  sale  of  spot  cotton  in  the  market 
where  the  future  transaction  involved  occurs  and  is  consum- 
mated if  such  market  be  a  bona  fide  spot  market;  and  in  the 
event  there  be  no  bona  fide  spot  market  at  or  in  the  place  in 
which  such  future  transaction  occurs,  then,  and  in  that  case, 
the  said  differences  above  or  below  the  contract  price  which 
the  receiver  shall  pay  for  cotton  above  or  below  the  basis  grade 
shall  be  determined  by  the  average  actual  comrtiercial  differ- 
ences in  value  thereof,  upon  the  sixth  business  day  prior  to 
the  day  fixed  in  accordance  with  the  sixth  subdivision  of  sec- 
tion five,  for  the  delivery  of  cotton  on  the  contract,  in  the  spot 
markets  of  not  less  than  five  places  designated  for  the  pur- 
pose from  time  to  time  by  the  Secretary  of  Agriculture,  as 
such  values  were  established  by  the  sales  of  spot  cotton,  in  such 
designated  five  or  more  markets :  Provided,  That  for  the  pur- 
poses of  this  section  such  values  in  the  said  spot  markets  be 
based  upon  the  standards  for  grades  of  cotton  established  by 
the  Secretary  of  Agriculture:  And  Provided  further.  That 
whenever  the  value  of  one  grade  is  to  be  determined  from  the 
sale  or  sales  of  spot  cotton  of  another  grade  or  grades,  such 
value  shall  be  fixed  in  accordance  with  rules  and  regulations 


I'.. 


148 


AGKICULTURAL  COMMERCE 


which  shall  be  prescribed  for  the  purpose  by  the  Secretary  of 
Agriculture. 

The  New  York  Cotton  Exchange  now  settles  future  con- 
tracts in  accordance  with  the  particular  commercial-difference 
plan  required  by  law.  The  New  Orleans  commercial-differ- 
ence plan  has  also  been  affected,  because  the  United  States 
Secretary  of  Agriculture  has  not  thus  far  declared  New  Or- 
leans to  be  a  "bona  fide  spot  market.^'  Grade  differences  at 
New  Orleans  as  well  as  at  New  York  are  now  based  upon  the 
^'average  actual  commercial  differences  in  value"  prevailing 
in  not  less  than  five  spot  markets  designated  by  the  Secretary 
of  Agriculture.^ 

Grain  Futures  Are  Basis  Contracts.—Future  grain  con- 
tracts are  also  basis  rather  than  specific  contracts,  in  that  they 
permit  the  delivery  of  various  grades,  although  a  much  smaller 
number  than  in  case  of  cotton  futures.  The  standard  Chi- 
cago wheat  contract  permits  a  tender  of  No.  1  and  No.  2  red 
winter  wheat,  No.  1  northern  spring.  No.  1  and  No.  2  hard 
winter  and  No.  1  velvet  chaff  wheat.  In  Minneapolis  the 
contract  grade  for  wheat  is  No.  1  northern.  In  Duluth,  No.  1 
northern  spring  wheat  is  the  contract  grade  but  No.  2  north- 
ern may  be  tendered  at  5  cents  per  bushel  under  the  contract 
price.  In  New  York,  as  is  shown  in  the  wheat  contract  re- 
produced above  (page  145),  a  larger  number  of  grades  are 
deliverable  because  the  quantity  of  available  wheat  is  smaller. 
The  practice  in  the  various  markets  depends  largely  upon  the 
varieties,  grades  and  total  quantity  of  wheat  which  they, 
handle.  Contract  grades  are  similarly  established  for  de- 
livery of  corn,  oats,  and  flaxseed  futures.  Certain  grades  are 
commonly  deliverable  at  the  contract  prices,  and  various  others 
at  a  premium  or  discount  of  from  ^  to  5  cents  per  bushel. 

*The  Secretary  of  Agriculture  on  Feb.  10,  1915,  declared  the  fol- 
lowing markets  to  be  bona  fide  spot  markets:  Augusta  (Ga.),  Boston, 
Charleston,  Dallas,  Fall  Eiver,  Galveston,  Houston,  Little  Eock,  Mem- 
phis, Mobile,  Montgomery,  Norfolk,  Savannah,  and  Waco. 

The  following  are  designated  as  spot  markets  for  the  purpose  of 
determining  grade  differences:  Augusta  (Ga.),  Boston,  Dallas,  Fall 
Eiver,  Houston,  Little  Eock,  Memphis,  Montgomery,  Norfolk  and 
Savannah. 


SPECULATION  IN  FARM  PRODUCTS 


149 


Neither  cotton  nor  grain  futures  are  specific  as  to  the  time 
'  of  delivery,  the  seller  having  the  option  of  delivering  on  any 
day  of  the  contract  month. 

Short  Selling.— An  additional  feature  of  future  contracts 
is  that  the  seller  may  or  may  not  have  the  cotton,  grain  or 
other  product  in  his  possession  at  the  time  of  sale;  Persona 
selling  contracts  before  they  have  the  product  on  hand  are 
in  the  language  of  the  trade  "selling  short'' — they  are  relying 
on  their  ability  to  obtain  the  required  cotton  or  grain  before 
the  maturity  of  their  contracts. 

Manner  of  Delivery. — In  the  primary  grain  exchanges  de- 
liveries on  future  contracts  are  commonly  made  by  the  ten-^ 
der  of  negotiable  warehouse  receipts  issued  by  "regular"^ 
warehouses  or  elevators,  only  the  officially  graded  grain  in 
such  warehouses  or  elevators  being  acceptable.  In  some  mar- 
kets, as  in  New  York,  however,  "railroad  elevator  receipts,"  ^ 
"railroad  guaranteed  certificates,"  and  certificates  of  grain 
afloat  may  also  be  tendered.  Deliveries  on  cotton  futures  are 
made  by  the  tender  of  negotiable  press  or  warehouse  receipts 
accompanied  by  official  inspection  certificates.^ 

The  actual  warehouse  receipts  or  other  evidence  of  grain 
or  cotton  are  not,  however,  passed  from  hand  to  hand  each 
time  a  contract  is  sold.  To  avoid  this  the  seller  is  permitted 
to  issue  a  so-called  "delivery"  or  "transferable"  notice  in 
which  he  liotifies  the  buyer  that  he  stands  ready  to  deliver 
certain  receipts  in  fulfillment  of  the  contract.  The  receipts 
are  tendered  only  when  a  contract  is  closed  out  by  a  delivery 
of  the  actual  cotton  or  grain  which  it  represents. 

Though  future  contracts  call  for  the  delivery  of  specified 
quantities  of  produce,  their  settlement  does  not  necessarily 
result  in  such  delivery.  The  rules  of  the  Chicago  Board  of 
Trade,  for  example,  specify  that: 

In  case  it  shall  appear  that  the  delivery  of  any  outstanding 
trade  or  contract  between  members  of  the  Association  may  be 

^  See  chap,  iv,  p.  75. 

» Ibid.,  p.  81. 

'See  chap,  xiii,  p.  284. 


^^ 


\ 


160 


AGRICULTUKAL  COMMERCE 


offset  by  some  other  corresponding  trade  or  contract,  made  by 
the  parties  with  other  members  of  the  Association,  and  the 
parties  to  such  trade  or  contract,  or  their  authorized  agents, 
consent  to  such  offset,  such  trade  or  contract  shall  be  deemed 
to  have  heen  settled  and  any  balance  between  the  current  mar- 
ket value  of  the  property  covered  by  such  trade  or  contract, 
and  the  several  contract  prices  shall  be  due  and  payable  im- 
mediately by  the  party  from  whom  such  balance  may  be  due 
to  the  party  entitled  to  receive  the  same  under  his  con- 
tract. 

Thus  two  contracts  which  agree  in  all  particulars  except 
price  may  offset  each  other  and  be  settled  by  a  payment  of 
the  price  difference.  Contracts  may  in  this  way  be  closed 
out  by  direct  settlement  between  the  parties  concerned,  or  so- 
called  ''rings"  may  be  formed  whereby  the  future  transactions 
of  many  exchange  members  may  be  offset  and  balances  ad- 
justed. 

Legality  and  Binding  Nature  of  Futures. —Whether  o  r 
not  actual  deliveries  of  produce  are  made  on  all  future  con- 
tracts, such  contracts  are  binding  and  in  every  case  represent 
actual  grain,  cotton  or  other  property. 

The  seller  of  such  a  contract  is  absolutely  liable  for  the 
delivery,  and  if  called  upon  for  such  delivery  by  the  buyer  he 
can  in  no  way  avoid  compliance  with  the  terms  of  his  contract 
except  under  unusual  conditions  especially  provided  for.  .  .  , 
When  the  time  for  making  delivery  has  expired  he  cannot  sell 
out  his  contract.  This  fact  and  the  fact  that  any  buyer,  from 
the  first  to  the  last,  can  if  he  chooses  hold  his  contract  and 
compel  the  seller  to  deliver  actual  cotton  (grain,  etc.,  as  the 
case  may  be)  when  the  date  of  maturity  arrives,  give  trading 
in  futures  a  character  entirely  different  in  principle  at  least, 
from  that  of  a  mere  wager  or  bet.* 

Though  futures  are  unfortunately  sometimes  bought  or 
sold  in  a  spirit  of  gambling,  the  contracts  nevertheless  repre- 
sent actual  farm  products.  In  the  absence  of  prohibitive 
statutes  and  of  proof  that  both  buyer  and  seller  of  a  future 
contract  understand  it  to  be  a  wager  upon  which  no  delivery 

'  bureau  of  Corporations ;   Cotton  Exchanges,  Part  I,  p.  43, 


SPECULATION  IN  FARM  PRODUCTS 


151 


' 


will  be  made,  the  legality  and  binding  nature  of  such  a  con- 
tract is  upheld  by  the  courts.^ 

Bucket  Shops. — Brokerage  firms  dealing  in  futures  should 
not  be  confused  with  ^n)ucket  shops"  the  transactions  of  which 
in  no  way  concern  either  the  spot  or  future  cotton  and  grain 
trades.  The  so-called  "purchases"  or  "sales"  which  are  made 
in  bucket  shops  are  not  real  purchases  or  sales  but  mere 
wagers  or  bets  upon  the  future  prices  of  specified  commodi- 
ties. Bucket  shops  are  not  only  illegal  as  gambling  institu- 
tions but  are  in  most  states  prohibited  by  specific  anti-bucket- 
shop  statutes. 

Options. — Future  contracts  should  likewise  be  distin- 
guished from  "options"  which  are  merely  privileges  entitling 
the  buyer,  in  return  for  a  consideration  or  forfeit,  either  to 
compel  the  seller  to  deliver  or  to  receive  a  specified  amount 
of  produce  at  a  fixed  price  and  within  a  prescribed  time.  An 
option  entitling  the  buyer  to  deliver  a  certain  amount  of 
produce  is  known  as  a  "put";  one  entitling  him  to  call  upon 
the  seller  for  such  produce  is  a  "call";  and  an  option  which 
entitles  the  buyer  either  to  deliver  or  receive  is  a  "straddle." 
Options  differ  from  future  contracts  in  that  they  do  not  re- 
•quire  delivery  unless  the  buyer  chooses  to  exercise  his  privilege 
to  put  or  call.  They  serve  as  a  means  of  limiting  losses  in 
produce  transactions,  but  have  so  frequently  been  used  as  mere 
betting  devices  that  in  most  states  they  are  prohibited  alike  by 
state  statute  and  exchange  regulations. 

Functions  of  Speculative  Exchanges  in  the  Sale  of 

Spot  Produce 

One  of  the  direct  functions  of  the  speculative  exchanges 
is  that  they  facilitate  and  supervise  speculation  in  produce  and 
oblige  those  who  desire  to  speculate  to  do  so  in  accordance 
with  prescribed  rules  and  principles  of  justice  and  equity. 
The  speculative  exchanges,  however,  perform  important  func- 

» Irwin  vs.  Williar,  110  IT.  S.  499,  507;  C.  Parker:  ** Govern- 
mental Regulation  of  Speculation,"  The  Annals  of  the  American 
Academy  of  Political  and  Social  Science  Sept.,  1911,  p.  150, 


11  ni 


152 


AGRICULTUEAL  COMMERCE 


tions  in  the  sale  of  spot  or  cash  grain,  cotton  or  other  pro- 
duce, and  it  is  because  of  these  functions  that  they  are  im- 
portant links  in  the  organization  of  American  commerce. 

1.  Speculative  Exchanges  as  Spot  Markets.— The  specu- 
lative exchanges  are  not  merely  markets  for  dealing  in  futures 
but,  with  few  exceptions,  are  great  spot  or  cash  produce  mar- 
kets. This  is  particularly  the  case  in  the  grain  trade.  The 
greatest  grain  exchanges  of  the  United  States  are  located  in 
the  primary  grain  centers  of  the  interior  and  in  the  seaboard 
grain  markets,  and  as  was  preriously  stated,^  the  bulk  of 
the  grain  handled  at  these  markets  is  bought  and  sold  on  the 
exchanges  in  accordance  with  exchange  regulations.  While 
the  Chicago  Board  of  Trade  is  the  greatest  speculative  grain 
market  in  the  world  it  is  also  the  greatest  cash  grain  market, 
and  the  Minneapolis,  St.  Louis,  Duluth,  Kansas  City  and 
New  York  exchanges  are  likewise  important  spot  as  well  as 
speculative  markets.  Indeed,  on  many  of  the  primary  and 
seaboard  grain  exchanges  the  sale  of  spot  grain  is  of  greater 
importance  than  the  sale  of  futures. 

The  grain  exchanges  establish  uniformity  in  customs  and 
usages,  promote  equitable  trade  principles,  regulate  inspection, 
grading,  weighing,  elevators,  warehouse  receipts,  and  storage 
charges  and  commissions,  promulgate  rules  for  delivery,  and 
in  other  ways  provide  an  organized  market  where  cash  grain 
may  be  bought  and  sold  in  an  orderly  manner.  As  was 
previously  explained  their  spot  grain  regulations  depend 
somewhat  upon  the  extent  to  which  the  states  undertake  to 
regulate  the  grain  trade.^ 

Most  of  the  speculative  cotton  exchanges,  likewise,  are  im- 
portant spot  markets.  The  New  Orleans  Exchange  is  one 
of  the  largest  spot  cotton  markets  in  the  cotton  belt,  the  Liver- 
pool Exchange  is  the  largest  in  Great  Britain,  and  the  Havre 
Exchange  is  the  largest  in  France. 

While  in  recent  years  from  100,000  to  600,000  bales  of 
spot  cotton  have  been  annually  sold  on  the  New  York  Cotton 
Exchange,  it  is  the  only  great  speculative  produce  exchange 

^See  chap,  iv,  pp.  84,  87. 
^Ibid.,  p.  77. 


SPECULATION  IN  FARM  PRODUCTS 


163 


in  the  United  States  which  is  not  a  broad  spot  market.  The 
annual  spot  sales  which  in  the  early  seventies  exceeded  500,- 
000  bales  or  over  15  per  cent,  of  the  crop  at  times  fell  to 
less  than  100,000  bales  or  about  1  per  cent,  during  the  nine- 
ties.^ In  the  crop  year  1910-1911  the  spot  sales  were  reported 
at  404,000  bales  and  in  the  following  year  at  219,000  bales, 
or  3.3  and  1.4  respectively  ^  of  the  season's  crop.  The  princi- 
pal reasons  for  the  relative  decline  of  the  spot  business  are 
that  New  York  is  not  a  convenient  cotton-export  point,  that 
the  rail  rates  to  and  from  the  South  to  New  England  have 
been  so  readjusted  that  it  is  less  expensive  to  ship  cotton 
direct  to  the  mills  than  to  reship  it  from  New  York,  and  that 
the  southern  planters  and  dealers  are  financially  less  depend- 
ent upon  New  York  bankers  than  in  the  past.  A  portion  of 
the  cotton  supply  of  New  York,  moreover,  has  consisted  of 
so-called  "overs''  or  surplus  grades  of  cotton  for  which  the 
southern  spot  buyers  have  no  immediate  outlet,  and  this  has 
deterred  spinners  from  purchasing  spot  cotton  there.  Spin- 
ners likewise  contend  that  they  have  not  been  able  to  buy 
New  York  futures  with  a  view  to  requiring  actual  delivery  of 
cotton  because  the  contracts  permit  the  delivery  of  a  wide 
range  of  grades  including  the  surplus  grades  for  which  the 
spinning  demand  is  small.^  The  restrictions  placed  upon  the 
grades  deliverable  on  contracts  by  the  "Cotton  Futures  Act" 
will  probably  exert  an  influence  upon  the  quality  and  quan- 
tity of  cotton  handled  in  the  New  York  market  in  the  fu- 
ture. 

2.  Speculative  Exchanges  Provide  a  Continuous  Market. 
— It  is  largely  because  of  the  great  exchanges  where  there  is 
a  continuous  market  in  which  large  quantities  are  readily 
bought  and  sold  at  a  moment's  notice,  that  dealers  are  willing 
to  purchase  enormous  supplies  of  grain  and  cotton  during  the 
harvesting  seasons.     By  providing  a  continuous  market,  the 

*  U.  S.  Bureau  of  Corporations :    Cotton  Exchanges  Part  I,  pp. 
248-249. 

"New  York  Cotton  Exchange:    Annual  Eeport  of  Cotton  Crop 
(1910-1911  and  1911-1912). 

•  M.  T.  Copeland :     The  Cotton  Manufacturing  Industry,  p.  186. 


li 
« 

I  -■;  I 


I'-. 


I 


I' 


1 1 


154 


AGRICULTUEAL  COMMERCE 


exchanges  and  the  use  of  negotiahle  warehouse  receipts  give 
to  produce  the  quality  of  mobility,^ 

The  existence  of  a  continuous  market  also  facilitates  the 
financing  of  the  grain  and  cotton  crops.  Were  it  not  for  the 
ability  to  hedge  and  the  knowledge  that  grain  and  cotton 
always  have  a  ready  market  on  the  exchanges,  bankers  would 
be  less  ready  to  provide  buyers  with  the  necessary  loans,  and 
commissionmen  and  merchants  would  be  more  cautious  in  the 
making  of  advances  or  loans  to  local  buyers  and  producers. 
The  ability  to  hedge,  moreover,  is  absolutely  dependent  upon 
the  existence  of  a  continuous  market.  The  presence  of  a 
group  of  speculators  facilitates  the  maintenance  of  a  continu- 
ous market,  for  some  of  them,  with  a  view  to  making  a  future 
profit,  are  always  willing  to  accept  any  quantity  offered  in 
the  market. 

3.  Speculative  Exchanges  Collect  and  Disseminate  Trade 
Information. — The  great  exchanges  act  as  "clearing  houses 
of  infonnation."  ^  ;N^ot  only  do  the  exchanges  as  such  collect 
and  publish  information  and  post  it  on  bulletins,  but  the 
knowledge  of  their  individual  members  as  to  crop  conditions 
and  movements,  weather  conditions,  changes  in  transportation 
charges,  federal  and  state  legislation,  competition,  cooperation 
and  the  remaining  forces  affecting  the  supply  of  and  demand 
for  produce,^  is  currently  given  "expression  in  the  form  of 
purchases  and  sales  at  prices  which  are  immediately  trans- 
mitted by  wire  to  all  the  trade  centers^^and  soon  made  avail- 
able to  the  general  public  by  the  daily  press.'''  * 

4.  Speculative  Exchanges  Tend  to  Establish  World  Prices. 
— ^By  providing  a  continuous  market,  disseminating  trade  in- 
formation, and  providing  an  organized  market  where  future 
conditions  may  be  systematically  discounted,  the  speculative 

*S.  S.  Huebner:  '*The  Functions  of  Produce  Exchanges/'  The 
Annals  of  the  American  Academy  of  Political  and  Social  Science, 
Sept.,  1911,  p.  11. 

*Ibid.,  p.  16. 

*See  chap,  xvii,  pp.  350-354. 

*S.  S.  Huebner:  **The  Functions  of  Produce  Exchanges/'  The 
Annals  of  the  American  Academy  of  Folitical  and  Social  Science, 
Sept.,  1911,  p.  16. 


SPECULATION  IN  FAEM  PKODUCTS 


155 


exchanges  do  much  to  establish  world  prices  for  cotton  and 
nearly  all  the  leading  cereals.  It  is  on  these  exchanges  that 
large  numbers  of  buyers  and  sellers  regularly  register  their 
knowledge  of  the  present  and  their  judgment  of  the  future 
each  time  they  buy  or  sell.  The  telegraph  and  ticker  service 
has  so  connected  the  various  grain  exchanges  that  they  are 
practically  a  single  vast  market.  Allowing  for  differences  in 
transportation  and  shipping  costs  and  in  some  cases  import 
tariffs,  the  grain  prices  paid  at  most  of  the  great  exchange 
markets  throughout  the  world  are  in  the  long  run  substantially 
uniform;  because  the  many  arbitrageurs  who  buy  and  sell  at 
any  of  the  exchange  markets  with  a  view  to  making  a  profit 
out  of  temporary  price  differences  cause  the  various  exchanges 
to  seek  a  common  level.^  Wide  differences  occur  only  tempo- 
rarily. In  the  same  way  there  is  normally  a  world's  market 
and  price  for  cotton. 

The  prices  paid  in  the  exchange  markets  affect  not  only  the 
exchange  transactions,  but  as  previously  stated  the  prices  re- 
ceived by  the  growers  of  cotton  and  grain,  and  those  paid  by 
millers,  malsters,  cereal  manufacturers,  spinners  and  weavers 
are  usually  based  directly  upon  the  current  price  quotations 
of  the  primary  market  in  which  the  grain  is  bought  or  sold 
or  of  the  cotton  exchange  in  which  the  cotton  is  hedged. 

5.  Future  Contracts  as  a  Means  of  Insuring  Trade  Profits. 
— It  is  not  only  by  furnishing  a  continuous  market  where 
grain  or  cotton  may  be  bought  or  sold  at  any  time  that  the 
exchanges  afford  protection  to  producers,  dealers,  bankers  and 
manufacturers.  The  future  contracts  which  are  bought  and 
sold  on  the  exchange  serve  as  a  means  of  insuring  against  the 
loss  of  trade  profits  resulting  from  fluctuations  in  the  prices 
of  spot  produce. 

The  most  direct  use  of  futures  for  this  purpose  occurs 
when  producers,  dealers,  merchants,  exporters  or  other  sellers 
of  grain  or  cotton  sell  contracts  with  a  view  to  actually  deliver- 
ing the  grain  or  cotton  at  the  agreed  price,  and  when  millers, 
spinners  or  other  buyers  of  produce  purchase  futures  for  the 
purpose  of  requiring  such   deliveries   during  given  months 

^See  chap,  iv,  p.  56. 


156 


AGRICULTURAL  COMMERCE 


throughout  the  year.  Grain  futures  are,  however,  not  gen- 
erally used  in  this  way  and  cotton  futures  seldom,  because 
they  are  not  specific  as  to  the  grade  which  will  be  delivered 
or  the  day  of  the  month  when  deliveries  will  be  made. 

Futures  are  more  commonly  used  as  a  means  of  hedging 
spot  transactions.    Any  dealer  or  shipper  with  grain  or  cotton 
on  hand  for  which  no  immediate  orders  are  received  may 
hedge  by  selling  future  contracts  on  the  speculative  exchanges. 
Perhaps  the  simplest  illustration  is  that  of  a  primary  market 
grain  dealer  who  has  a  quantity  of  grain  in  store  which  he 
eventually  hopes  to  ship  to  the  seaboard  and  by  so  doing  make 
a  small  trade  profit.     Assuming  that  in  August  a  Chicago 
dealer  has  bought  100,000  bushels  of  wheat  for  90  cents  a 
bushel,  it  is  obviously  important  in  the  absence  of  insurance, 
that  prices  should  not  decline  before  he  finds  his  eastern 
buyer.     In  order  to  protect  himself  against  this  possibility 
he  may  immediately  sell  a  future  contract  on  the  exchange 
for  delivery  in  some  future  month,  say  in  September.     He 
now  is  party  to  two  distinct  transactions — a  spot  and  a  future 
transaction — for  it  is  not  his  intention  to  deliver  his  grain 
on  the  future  contract  which  he  has  sold.     If  by  the  time  he 
finds  his  eastern  buyer  the  price  of  wheat  in  Chicago  has  de- 
clined to  8(>  cents  it  is  obvious  that  he  has  lostJ^O  cents  per 
bushel  on  the  grain  which  he  has  in  store.     In  that  event, 
however,  the  price  of  futures  will  also  have  declined  10  cents, 
for  spot  and  future  grain  prices  normally  fluctuate  together, 
and  he  is  therefore  able  to  close  out  or  cover  his  short  sale  by 
buying  a  future  at  a  profit  of  10  cents  a  bushel.    The  loss  on 
his  spot  grain  and  the  profit  on  his  future  transaction,  there- 
fore, counterbalance  each  other  and  on  the  basis  of  Chicago 
prices  he  has  neither  a  loss  nor  a  profit.     Spot  prices  in  the 
seaboard  markets,  however,  are  normally  higher  than  those  at 
Chicago  or  other  primary  markets  by  an  amount  sufficient  to 
cover  shipping  and  handling  costs  and  yield  a  trade  profit. 
When  the  price  of  his  grain  in  Chicago  has  declined  to  80 
cents,  he  will  therefore  be  able  to  sell  in  New  York  at  say  88, 
which  will  enable  him  to  pay  shipping  and  handling  costs  and 
make  the  small  trade  profit  which  he  originally  desired.    Had 


SPECULATION  IN  FARM  PRODUCTS 


157 


the  price  of  grain  risen  instead  of  declined  his  hedge  would 
have  deprived  him  of  a  speculative  gain,  but  would  have  sim- 
ilarly insured  his  trade  profit. 

In  the  same  way  country  grain  dealers,  line  elevator  com- 
panies, seaboard  grain  dealers,  grain  exporters,  local  cotton 
merchants,  cotton  exporters  and  brokers  or  other  grain  and 
cotton  dealers  in  many  cases  hedge  grain  or  cotton  which  they 
have  bought  so  as  to  insure  their  trade  profits.  Hedging  is 
sometimes  more  complicated  than  the  simple  illustration  here 
given ;  for  cotton,  for  example,  may  be  bought  in  the  interior 
of  the  South,  hedged  on  the  New  York  or  New  Orleans  ex- 
changes, and  ultimately  sold  in  Liverpool  or  New  England, 
but  the  principle  is  the  same. 

Grain  and  cotton  dealers  of  all  kinds  may  also  hedge  grain 
or  cotton  which  they  have  privately  contracted  to  deliver  at 
a  fixed  price,  but  which  they  do  not  at  the  time  possess. 
Thus  it  may  be  assumed  that  in  August  the  Chicago  grain 
dealer,  mentioned  above,  privately  contracts  to  deliver  to  a 
New  York  miller  in  September  100,000  bushels  of  a  particu- 
lar grade  of  wheat  at  90  cents  a  bushel,  but  that  he  does  not 
possess  this  wheat  at  the  time  he  accepts  the  contract.    He 
agrees  to  deliver  at  90  cents  because  that  price  will  enable  him  ' 
to  make  a  trade  profit  and  because  it  bears  the  correct  rela- 
tion to  the  price  at  which  he  can  buy  September  futures.^    He 
therefore  immediately  buys  a  September  future  for  the  same 
quantity  of  wheat  at  say  83  cents  per  bushel.    Assuming  that 
the  price  of  wheat  rises  and  that  he  buys  the  100,000  bushels  of 
cash  wheat  in  Chicago  for  92  cents,  it  is  obvious  that  he  has  lost 
2  cents  as  a  result  of  the  fluctuation  in  the  price  of  spot  wheat. 
The  future  which  he  bought  would  normally,  however,  also 
have  risen  to  92  cents,  and  he  could  sell  it  at  a  profit  of  10 
cents  per  bushel.    He  would  now  be  able  to  deliver  the  100,- 
000  bushels  profitably  at  90  cents  a  bushel,  because  the  8  cents 
net  difference  between  his  loss  on  the  spot  transaction  and 
profit  on  the  future  transaction  is  adequate  to  cover  shipping 
and  handling  costs  and  yield  a  small  trade  profit. 

*  90  cents  =  82  cents  in  Chicago  plus  say  8  cents  to  cover  shipping 
and  handling  costs  and  a  trade  profit. 


h 


m 


h 


168 


AGRICULTURAL  COMMERCE 


f 


Spinners  or  millers  who  have  bought  a  supply  of  cotton  or 
grain  without  having  contracted  to  sell  their  yarn  or  flour 
may  similarly  hedge  by  selling  a  corresponding  quantity  of 
future  contracts.  If  they  have  contracted  to  deliver  certain 
quantities  of  yarn  or  flour  before  buying  the  required  amount 
of  cotton  or  grain  they  may  hedge  by  purchasing  future  con- 
tracts. Textile  manufacturers,  millers,  wholesale  merchants 
or  others  who  have  on  hand  a  large  stock  of  unsold  finished 
cotton  or  grain  products  may  if  they  desire  hedge  by  selling 
cotton  or  grain  futures  in  proportion  to  the  amount  of  cotton 
or  grain  required  to  make  a  given  quantity  of  the  finished 
products.  They  may  in  this  way  avoid  loss  on  their  stock  of 
goods  to  some  extent  because  the  prices  of  the  finished  prod- 
ucts are  in  a  large  measure  based  upon  the  price  of  the  raw 
materials.^  Since  this  price  relation  is  not  at  all  times  definite 
and  exact  the  hedging  system  is  less  commonly  used  than  in 
the  purchase  and  sale  of  raw  cotton  and  grain. 

The  amount  of  grain  and  cotton  hedging  on  the  part  of 
millers  and  spinners  varies  in  different  places.     Large  flour 
millers  in  the  United  States  regularly  hedge  their  grain  and 
flour  transactions.    American  cotton  spinners  hedge  less  fre- 
quently; the  practice  is  still  less  common  among  Continental 
European  spinners  who  carry  somewhat  smaller  stocks  of  raw 
cotton  and  are  further  removed  from  the  large  speculative  ex- 
changes ;  and  there  is  relatively  little  hedging  on  the  part  of 
British  spinners  who  usually  require  the  cotton  merchants  to 
hold  all  but  a  small  part  of  the  raw  cotton  supply.     The 
greatest  amount  of  hedging  is  done  by  the  merchants,  dealers 
exporters  and  other  grain  and  cotton  middlemen  who  stand 
between  the  farmers  and  the  manufacturers,  and  who  desire 
to  make  a  trade  profit  by  distributing  the  crops. 

The  aggregate  volume  of  hedging  transactions  is  enor- 
mous,  for  a  given  quantity  of  grain  and  cotton  may  be  vari- 
ously hedged  by  the  local  buyer,  central  dealer,  exporter, 
manufacturer  and  any  other  grain  and  cotton  concerns.  It 
'See  Eeport  of  Committee  of  American  Cotton  Manufacturers' 
MlyXim''''   87**^''  Exchanges,  Textile  Manufacturers*  Journal. 


i1 


SPECULATIOlSr  IN  FARM  PRODUCTS  159 


may  also  be  hedged  repeatedly  by  a  single  owner,  for  hedges 
may  be  shifted  from  month  to  month  until  the  spot  grain  or 
cotton  is  eventually  disposed  of.  Hedging  is  perhaps  the 
principal  trade  function  of  the  speculative  exchanges. 
Strangely  enough  it  enables  those  grain  and  cotton  concerns 
that  wish  to  avoid  the  danger  of  speculation  to  protect  their 
trade  profits  by  entering  the  speculative  market. 

Hedging  does  not  always  afford  complete  insurance  of 
trade  profits,  for  prices  of  spot  produce  and  futures  do  not 
always  fluctuate  in  exact  relation  to  each  other.  In  the  grain 
trade  the  difficulty  of  attaining  substantially  exact  hedges  has 
been  small.  In  the  cotton  trade,  however,  the  relation  be- 
tween spot  and  future  prices  has  at  various  times  broken 
.  down.  Owing  to  the  seller's  right  to  deliver  numerous  grades 
of  cotton  including  low  grades,  cotton  futures  have  normally 
sold  at  a  discount.  The  merchant  or  spinner  can  make  due 
allowance  for  this  normal  discount,  but  when  at  times,  espe- 
cially in  New  York,  the  cotton  futures  have  sold  abnormally 
low  because  of  inaccurate  grade  differences  or  other  reasons, 
the  hedge  has  not  afforded  complete  protection.  The  exact- 
ness of  hedging  may  also  at  times  be  destroyed  by  undue 
manipulation  or  the  cornering  of  futures  maturing  in  particu- 
lar months. 

Various  provisions  of  the  ''Cotton  Futures  Act"  affect  cot- 
ton hedging:  (1)  The  two  cent  per  pound  tax  payable  in 
case  a  person  in  the  United  States  buys  or  sells  a  future  con- 
tract on  a  foreign  exchange  not  complying  with  the  condi- 
tions imposed  by  the  act  prevents  Americam  cotton  exporters 
from  hedging  on  the  Liverpool  exchange.  (2)  The  restric- 
tions applicable  to  future  contracts  made  on  American  ex- 
changes, especially  those  debarring  the  delivery  of  low-grade 
or  mixed  packed  cotton  or  cotton  that  is  less  than  seven- 
eighths  of  an  inch  in  length  of  staple,  has  caused  some  un- 
certainty as  to  the  relation  between  the  price  of  futures  and 
of  spot  cotton.  Whether  or  not  this  uncertainty  will  be  a 
permanent  one  cannot  at  present  (May,  1915)  be  foretold. 
Thus  far,  however,  the  act  has  confined  hedging  on  the  part 
of  American  cotton  dealers  or  merchants  to  American  ex- 


M' 


^  I1 1 


160 


AGRICULTURAL  COMMERCE 


changes  and  has  tended  to  restrict  somewhat  the  total  amount 
of  cotton  hedging. 


Effect  of  Spectjlation  on  Spot  Prices 

There  are  widely  varying  views  as  to  the  effect  of  specula- 
tion upon  the  price  of  spot  produce.    Cotton  and  grain  grow- 
ers not  infrequently  contend  that  it  depresses  the  prices 
which  they  receive.    This  view  is  based  mainly  on  the  belief 
that  as  spot  and  future  prices  largely  fluctuate  in  harmony,  the 
sale  of  futures  has  the  same  effect  as  a  large  increase  in  the 
supply  of  grain  or  cotton.    The  sale  of  futures,  whether  as  a 
short  sale  or  otherwise,  does  not,  however,  have  such  a  de- 
pressing effect.     In  the  first  place  every  short  sale  means 
also  a  purchase  at  the  time  and  "consequently  against  the  de- 
pressing influence  of  the  short  sale  there  is  the  uplifting  influ- 
ence of  the  purchase,  and  the  effect  of  the  transaction  on 
prices  is  determined  by  the  relative  character  of  the  buying 
and  selling  and  not  by  the  mere  fact  that  a  sale  has  been 
made/'  ^     Se^nd,  every  future  is  a  valid  and  binding  con- 
tract.   Every  short  sale,  therefore,  before  or  at  the  time  when 
the  contract  matures,  requires  a  purchase  either  of  grain  or 
cotton  or  of  another  future  to  offset  the  one  that  was  sold. 
Third,  "this  popular  misconception  of  short  selling  overlooks 
the  extremely  important  fact  that  influential  speculators  sel- 
dom undertake  deliberately  to  contest  natural  conditions  at 
least  for  any  length  of  time.    Instead  they  frequently  spend 
large  sums  of  money  in  securing  all  possible  information 
which  may  tend  to  influence  prices.    Instead  of  fighting  nat-  ■ 
ural  conditions,  the  ordinary  speculator  is  eager  to  ascertain 
correctly  what  the  natural  conditions  are  and  what  their 
probable  influence  will  be,  and  then  to  shape  his  campaign 
in  the  market  in  accord  with  such  information."  ^     Fourth, 
as  was  pointed  out  in  a  previous  chapter,  when  futures  sell 
at  an  abnormal  discount,  as  they  sometimes  do  in  the  cotton 

*U.  S.  Bureau  of  Corporations:    Cotton  Exchanges,  Part  IV,  p. 


276. 


'Ihid. 


SPECULATION  IN  FARM  PRODUCTS  161 


trade,  the  spot  prices  of  the  large  markets  refuse  to  follow 
the  price  of  futures  and  the  cotton  buyers  are  economically 
compelled  to  readjust  the  limits  which  determine  the  growers' 
prices.^  Fifth,  statistics  as  well  as  common  trade  knowledge 
indicate  that  in  the  years  when  the  volume  of  future  sales 
is  greatest  spot  prices  are  usually  higher  than  when  specula- 
tion is  at  low  ebb. 2 

Sixth,  the  present  effect  of  speculation  upon  farmers' 
prices  is  not  to  be  judged  by  comparison  with  assumed  prices 
such  as  might  be  paid  if  all  the  abuses  of  speculation  were 
abolished  and  all  its  advantages  were  retained,  but  by  com- 
parison with  the  prices  which  would  probably  be  paid  if  there 
were  no  speculation  whatever.  The  widespread  use  of  the 
future  markets  for  hedging  purposes  makes  it  clear  that  if 
the  selling  of  futures  were  everywhere  abolished,  grain  and 
cotton  buyers  would  endeavor  to  protect  their  trade  profits 
by  paying  the  farmers  relatively  lower  prices. 

While  there  are  farmers  who  believe  that  speculation  de- 
presses spot  prices,  so  there  are  some  flour  millers  and  cotton 
spinners  who  are  equally  positive  that  it  has  the  opposite 
effect.  They  usually  have  in  mind  the  "corners"  which  some- 
times occur  in  the  speculative  markets.  A  speculative  corner 
occurs  when  the  outstanding  futures  maturing  in  a  particular 
month  are  bought  up  by  a  group  of  operators  who  suddenly 
threaten  to  require  delivery.  It  is  only  a  temporary  "squeeze" 
which  lasts  until  the  operators  who  sold  short  for  delivery  in 
that  month  settle  at  a  much  advanced  price.  It  is  an  evil 
mainly  because  of  its  disturbing  effect  upon  outstanding 
hedges.  The  speculative  corner  should  not  be  confused  with 
an  actual  corner  of  spot  grain  or  cotton.  Such  a  corner  would 
have  far-reaching  effects,  but  the  grain  and  cotton  crops  of 
the  United  States  and  of  the  world  have  become  so  vast  there 
is  little  likelihood  of  such  a  calamity. 

While  the  sale  of  futures  usually  tends  to  maintain  grow- 


»Chap.  V,  p.  114. 

Tor  cotton  price  statistics  see  Bureau  of  Corporations:  Cotton 
Exchanges,  Part  IV,  pp.  272-275.  For  grain  price  statistics  see  U.  S. 
Industrial  Commission  Eeport,  Vol.  vi,  pp.  192-195. 


''i 


V'l 


162 


AGKICULTURAL  COMMERCE 


i 


ers'  prices  because  of  their  use  for  hedging  purposes,  it  does 
not  follow  that  the  spot  prices  paid  by  flour  millers  and  cot- 
ton spinners  are  thereby  advanced  beyond  the  level  warranted 
by  natural  conditions  of  supply  and  demand.  As  stated  by 
the  United  States  Bureau  of  Corporations  in  connection  with 
cotton  prices,  "regardless  of  just  how  the  benefit  is  divided 
as  between  producer  and  spinner,  it  is  certain  that  the  hedg- 
ing function,  under  a  properly  conducted  system,  tends,  within 
narrow  limits,  to  increase  the  price  of  cotton  to  the  producer 
without  advancing  the  price  to  the  spinner/^  ^ 

Speculation  affects  central  market  prices  in  that  it  tends 
to  establish  a  proper  price  level  earlier  than  it  would  other- 
wise be  established.  It  moreover  tends  to  steady  spot  prices. 
This  steadying  effect  is  not  to  be  confused  with  the  fact  that 
future  prices  have  in  recent  years  fluctuated  more  violently 
and  more  frequently  than  spot  prices.  Spot  prices  are  steadied 
by  speculation  in  that  without  the  tendency  of  the  exchanges 
to  constantly  discount  future  conditions  and  their  unusual 
efforts  to  obtain  accurate  trade  information,  they  would  break 
much  more  sharply  between  the  harvesting  seasons.  The 
speculative  exchanges  likewise,  as  was  previously  pointed  out, 
facilitate  the  establishment  and  maintenance  of  a  world's 
price  for  cotton  and  the  leading  cereals. 

BIBLIOGRAPHY 

CoNANT,  L.  "The  United  States  Cotton  Futures  Act,"  Ameri- 
can Economic  Review  (Nov.,  1915). 

CoPELAND,  M.  T.  The  Cotton  Manufacturing  Industry  of  the 
United  States  (1913),  chaps,  x,  xxii. 

BoNDLiNGER,  P.  T.    The  Book  of  Wheat  (1908),  chap.  xiii. 

HuEBNER,  S.  S.  "The  Functions  of  Produce  Exchanges,"  The 
Annals  of  the  American  Academy  of  Political  and  Social 
Science  (Sept.,  1911),  pp.  1-35. 

Marsh,  A.  R.  "The  New  Rules  of  the  New  York  Cotton  Ex- 
change," Textile  Manufacturers*  Journal  (May  2,  1914), 
pp.  78-83. 

Seibels,  W.  T.    Produce  Markets  and  Marketing  (1911). 
*  Cotton  Exchanges,  Part  IV,  p.  284. 


SPECULATION  IN  FARM  PRODUCTS 


163 


Smith,  R.  E.  Wheat  Fields  and  Markets  of  the  World  (1908), 
Part  ii. 

Sparling,  S.  E.    Business  Organization  (1906),  chap.  9. 

Chicago  Board  of  Trade:  Annual  Report  of  the  Trade  and 
Commerce  of  Chicago   (containing  rules  and  by-laws). 

Committee  of  American  Cotton  Manufactures  Association: 
Report  on  Cotton  Exchanges,  Textile  Manufacturers' 
Journal  (May  2,  1914),  p.  87. 

House  of  Representatives  (Committee  on  Rules) :  "Grain 
Exchanges,"  Hearings  on  House  Resolution  24  (Mar. 
3-7,  1914). 

New  Orleans  Cotton  Exchange :  Rules  Governing  Future  Con- 
tract Cotton  Business  in  the  New  Orleans  Market  (1914). 

New  York  Cotton  Exchange:  Rules  Governing  Future  Con- 
tract Cotton  Business  in  New  York  Market  (1914). 

New  York  Produce  Exchange:  Annual  Report  (containing 
rules  and  by-laws). 

United  States  Bureau  of  Corporations:  Cotton  Exchanges 
(1909). 

United  States  Industrial  Commission:  Distribution  of  Farm 
Products  (1901),  Vol.  VI,  Part  4. 

"American  Produce  Exchange  Markets"  (collection  of  valuable 
papers).  The  Annals  of  the  American  Academy  of  Po- 
litical and  Social  Science  (Sept.,  1911). 

Series  of  short  papers  on  Grain  Exchanges,  National  Hay  and 
Grain  Reporter  (May  20,  1911). 


rii 


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I- 


I 


CHAPTER   VIII 


THE  LOCAL   MAEKET    FOR  LIVESTOCK 


l^ 


The  livestock  trade  of  the  United  States  has  reference, 
largely,  to  the  trade  in  beef  cattle,  hogs  and  sheep.  Dairy 
cattle  are  the  basis  of  the  country's  highly  important  dairy 
industries,  and  the  value  of  horses,  etc.,  for  draft  purposes 
is  unquestioned;  but  neither  in  dairy  cattle  as  such  nor  in 
horses  is  there  the  systematically  conducted  trade  that  is 
carried  on  in  meat-producing  animals. 

The  trade  in  beef  cattle,  hogs  and  sheep  will  serve  to  illus- 
trate an  agricultural  industry  in  which  there  is  no  systematic 
exchange  speculation,  in  which  the  growers  instead  of  selling 
locally  ship  much  of  their  output  direct  to  large  central  mar- 
kets, and  in  which  the  central  or  primary  markets  serve  some- 
what different  purposes  than  those  of  the  grain  and  cotton 
trades. 


Geographical  Classification  op  Livestock  Trade 

The  CatUe-growing  Districts. — The  United  States  Depart- 
ment of  Agriculture  estimates  that  the  total  number  of  cattle, 
other  than  dairy  cows,  on  the  farms  of  the  United  States  has 
declined  from  a  maximum  of  over  51,500,000  on  January  1, 
1907,  to  35,855,000  on  January  1,  1914,  and  37,067,000  on 
January  1,  1915.  The  returns  of  the  Census  Office  differ 
from  these,  but  likewise  show  a  decline  from  50,584,000  on 
June  1,  1900,  to  41,178,000  on  April  15,  1910.  There  are  in 
addition  some  21,000,000  dairy  cows.  The  total  number  of 
cattle  varies  considerably  at  different  times  of  the  year,  the 
number  on  July  first  being  about  14  per  cent,  larger  than  on 

164 


LOCAL  MARKET  FOR  LIVESTOCK 


165 


February  first,*  and  this  variation  explains  a  part  of  the  differ- 
ence betVeen  the  census  returns  and  those  of  the  Department 
of  Agriculture.  It  also  shows  that  the  decline  in  the  number 
of  cattle  during  the  decade  1900  to  1910,  as  reported  by  the 
Census  Office,  is  somewhat  exaggerated  because  their  number 
is  normally  about  4  per  cent,  larger  in  the  United  States  on 
June  first  than  on  April  fifteenth. 

The  largest  numbers  of  beef  cattle  are  raised  in  Texas, 
Iowa,  Nebraska,  Kansas,  California,  Missouri,  Illinois,  Okla- 
homa, Minnesota,  Wisconsin,  Colorado,  South  Dakota  and 
New  Mexico.  Although  cattle  are  raised  throughout  the  en- 
tire country,  the  great  beef -producing  states  are  those  of  th^ 
Mississippi  Valley  and  the  Far  West. 

They  may  be  divided  into  three  main  areas:  (1)  the 
northwestern  grazing  grounds,  or  northern  half  of  the  Greal 
Plains  including  the  eastern  foothills  and  many  of  the  pla- 
teaus and  valleys  of  the  Rocky  Moimtains.  In  this  area,  com- 
prising large  parts  of  North  and  South  Dakota,  Minnesota, 
western  Nebraska,  Colorado,  Montana  and  Wyoming,  the 
so-called  "western'^  grass-fed  cattle  are  grown.  (2)  The 
southwestern  grazing  grounds,  comprising  parts  of  Texas, 
Oklahoma,  Arkansas,  New  Mexico  and  Arizona.  The  cattle 
raised  in  this  area  are  commonly  known  as  ''Texas  range"  cat- 
tle. (3)  The  feeding  grounds,  including  parts  of  Iowa,  Kan- 
sas, eastern  Nebraska,  Missouri  and  Illinois.  The  number  of 
beef  cattle  in  this  area  exceeds  that  in  any  other  cattle-grow- 
ing district,  for  not  only  do  the  growers  raise  much  native 
stock,  but  large  numbers  of  Western  and  Texas  range  cattle 
are  shipped  to  the  feeding  grounds  to  be  fattened  oii  corn 
and  to  a  smaller  extent  on  cottonseed  meal,  distillery  products 
and  the  coarse  grains.  Some  of  the  stock  feeders  are  corn 
growers  who  prefer  to  market  their  crop  in  this  way,  while 
others  are  professional  feeders  who  make  a  business  of  buying 
the  grass-fed  cattle  and  the  necessary  food  and  of  selling 
the  fattened  animals  at  prices  sufficiently  high  to  cover  all 
costs  and  yield  a  profit. 

*U.  S.  Bureau  of  Statistics  (Department  of  Agriculture),  The 
Agricultural  Outlook,  Apr.  23,  1914,  p.  9, 


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LOCAL  MARKET  FOR  LIVESTOCK 


167 


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As  shown  in  Map  No.  VII  many  beef  cattle  are  grown  in 
the  Pacific  slope,  in  the  North  Atlantic  states  and  throughout 
the  South,  but  the  cattle  trade  in  these  regions  is  mainly 
a  local  trade.  The  populous  regions  of  most  of  the  eastern 
and  southern  states  are  compelled  to  draw  upon  the  three  . 
principal  cattle-raising  areas  for  much  of  their  beef  sup- 
ply- 

The  Hog-raising  Area.— The    number    of    hogs    in    the 

United  States  has  according  to  census  returns  also  declined 
from  62,868,000  on  June  1,  1900,  to  58,186,000  on  April  15, 
1910,  a  loss  which  is  counterbalanced  by  the  fact  that  the 
number  is  normally  about  18  per  cent,  larger  on  June  first 
than  on  April  fifteenth.  The  Department  of  Agriculture  esti- 
mates that  the  number  of  hogs  on  the  farms  of  the  United 
States  on  January  1,  1901,  was  56,982,000,  on  January  1, 
1914,  58,933,000,  and  on  January  1,  1915,  64,618,000.  Be- 
tween March  first  and  October  first  there  is  a  seasonal  varia- 
tion of  about  47  per  cent.  Iowa,  Illinois,  Missouri,  Indiana, 
Ohio,  Nebraska,  Texas,  Wisconsin,  and  Arkansas  are  the  great 
hog-growing  states  of  the  country.  Many  are  raised  in  the 
South  and  in  the  vfcinity  of  the  large  North  Atlantic  cities, 
but  the  hog-growing  area  is  largely  confined  to  the  corn  belt. 
The  country's  corn  crop  is  used  mainly  to  feed  hogs,  cattle, 
sheep  and  other  livestock,  and  the  feeding  is  done  largely 
within  or  adjacent  to  the  corn  belt.^ 

The  Sheep-growing  Districts.— The  fiocks  from  which  the 
country  obtains  its  supply  of  mutton  and  lamb  are  raised 
mainly  in  four  districts.  (1)  The  northwestern  Rocky  Moun- 
tain foothills  and  northern  and  central  mountain  states  which 
are  particularly  important  as  the  mutton-producing  part  of 
the  western  sheep  ranges.  Montana  and  Wyoming  are  the 
greatest  sheep  growers  in  the  United  States,  and  large  num- 
bers are  also  raised  in  eastern  Idaho,  Colorado  and  Utah.  (2) 
The  southwestern  Rocky  Mountain  foothills  and  plains,  in- 
cluding New  Mexico,  Texas  and  Arizona.  (3)  The  Pacific 
Coast  states, — chiefly  Oregon,  California,  and  western  Idaho, 
and  (4)  the  central  Mississippi  and  Ohio  River  valleys,  in- 

*  See  map  No.  iv,  p.  33. 


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168 


AGRICULTTJEAL  COMMERCE 


eluding  Ohio,  Michigan,  Missouri,  Indiana,  Iowa,  Kentucky 
and  Illinois.     {See  Map  No.  VIII.) 

The  entire  sheep  flock  of  the  United  States  as  reported  by 
the  Census  Office  comprised  55,363,000  on  April  fifteenth, 

1910,  as  compared  with  63,374,000  on  June  1,  1900.  Since 
there  is  a  normal  variation  of  about  20  per  cent,  between 
April  fifteenth  and  June  first,  it  is  seen  that  the  number  dur- 
ing the  decade  remained  about  stationary.    From  January  1, 

1911,  to  January  1,  1915,  however,  the  estimates  of  the  De- 
partment of  Agriculture  show  a  decline  from  53,633,000  to 
49,956,000.  Between  February  first  and  June  first  of  each 
year  there  is  a  seasonal  variation  of  nearly  41  per  cent,  in 
the  total  number  of  sheep  on  the  farms  of  the  United  States. 

N-early  60  per  cent,  of  all  the  sheep  in  the  United  States 
are  raised  in -the  first  three  districts.  It  is  here  that  the 
operation  of  large  sheep  ranges  and  ranches  constitutes  one 
of  the  main  industries.  The  majority  of  the  sheep  are  grazed 
m  large  flocks  on  open  Government  ranges,  on  national  forest 
lands,  on  privately  leased  lands  or  on  lands  which  the  indiv- 
idual sheep  growers  or  sheep  corporations  have  purchased. 
Some  sheep  are  raised  on  inclosed  or  fenced-in  ranges  and 
ranches  but  they  are  more  commonly  handled  under  the  herd- 
ing system.  During  the  summer  they  are  in  many  cases 
driven  or  shipped  to  the  mountain  ranges  to  graze  on  native 
grasses  and  forage  plants  better  adapted  to  sheep  than  to 
cattle  grazing,  and  in  the  winter  months  those  which  have 
not  been  sold  are  moved  to  lower  and  more  sheltered  ranges 
where  grazing  and  feeding  maintains  them  until  spring. 

A  portion  of  the  sheep  found  in 'the  Central  West  are 
western  range-born  sheep  and  lambs,  which  as  in  the  case  of 
western  cattle  are  taken  there  to  be  fed  for  the  market.^ 
The  practice  is  less  common  than  in  the  cattle  industry,  but 
there  are  numerous  corn  growers  and  feeders  who  make  a 
business  of  purchasing  western  as  well  as  native  lambs  to  feed 
and  eventually  sell  at  a  profit. 

General  Magnitude  of  livestock  Industries.— The   mag- 

^U.  S.  Tariff  Board:    Wool  and  Manufactures  of  Wool,  vol    i 
p.  550.  '  ' 


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170 


AGEICTTLTTJEAL  COMMERCE 


nitude  of  the  meat-producing  livestock  industries  of  the 
United  States  is  seen  in  that  the  estimated  farm  value  of  the 
country^s  cattle  (other  than  dairy  cows)  on  January  1  1915 
was  $1,237,376,000,  of  hogs  $637,479,000,  and  of  sheep'$224,- 
687,000.  The  hog-raising  industry  of  the  United  States  ex- 
ceeds that  of  any  other  country  in  the  world;  the  number  of 
cattle  is  exceeded  only  in  British  India;  and  the  number  of 
sheep  only  m  Australia  and  Argentine  Republic. 

Volume  of  Annual  Livestock  Trade.— While  the  number 
and  value  of  the  food  animals  in  the  United  States  indicate 
the  source  of  the  country's  meat  supply,  only  a  portion  of  them 
are  annually  sold  in  the  market  or  slaughtered.    The  returns 
of  the  Census  Office  show  that  the  per  cent,  of  total  slaugh- 
ter to  total  stock  on  hand  on  January  1,  1909,  in  the  case  of 
hogs  was  about  81.2  per  cent.,  cattle  30.8  per  cent.,  cattle  other 
than  dairy  cows  41  per  cent.,  and  sheep  28.1  per  cent.    They 
mdicate  that  in  1909  the  total  output  of  stock  including  home 
consumption  and  exports  comprised  20,368,000  cattle    52- 
015,000  hogs,  and  14,620,000  sheep.     If  the  number  slaugh- 
tered on  the  farms  is  deducted,  it  is  seen  that  17,828,000  cat- 
tle (including  calves),  36,636,000  hogs  and  14,091,000  sheep 
reached  the  livestock  markets  of  the  United  States  for  slaugh- 
tering and  exporting  purposes.^    A  portion  of  those  slaugh- 
tered on  the  farms,  moreover,  are  sold  by  the  stock  growers 
m  local  meat  markets.  The  total  cattle  sold  by  growers  for 
all  purposes  was  in  1909  reported  as  27,315,000;  and  in  the 
same  year  37,500,000  hogs  and  18,991,000  sheep  were  sold 


i 


Shipping  peom  Local  Points  to  Central  Markets 

In  contrast  with  the  growers  of  grain  and  cotton  who 
usually,  though  not  always,  sell  their  crops  locally,  the  stock 
powers  throughout  the  central  and  far-western  states  usually 
ship  their  beef  cattle,  hog»  and  sheep  to  the  large  central  live- 
stock  markets.     The  animals  of  western  ranches  and  ranges 

^^ea  Thirteenth  U.  S.-  Census  (1910),  vol.  x,  pp.  343-345;  U.  S. 
Bureau  of  Animal  Industry,  Annual  Report  (1914),  pp.  253-260. 


LOCAL  MARKET  FOR  LIVESTOCK: 


in 


are  driven  to  local  shipping  points,  loaded  into  livestock  cars 
and  shipped  in  carload  lots  to  the  central  stockyards  at  Chi- 
cago, St.  Paul,  Kansas  City,  St.  Louis,  Omaha,  St.  Joseph, 
Sioux  City  and  other  slaughtering  and  packing  centers. 

Railroad  Equipment. — Livestock  is  shipped  to  the  central 
markets  in  especially  constructed  stock  cars,  equipped  with 
stalls  or  pens,  watering  troughs  and  feeding  appliances.  Hogs 
and  sheep  are  frequently  shipped  in  double-decked  cars.  The 
cars  are  mainly  owned  by  the  carriers,  but  some  are  owned  by 
private  stock-car  companies  who  lease  most  of  them  to  the 
railroads  upon  receipt  of  a  mileage  charge  of  about  .6  of  a 
cent  per  mile.  The  private  cars,  sometimes  known  as  "palace 
stock-cars,''  are  shipped  from  one  section  of  the  West  to  an- 
other, and  tend  to  supplement  the  cars  provided  by  the  car- 
riers. Some  of  them  are  rented  to  stock  owners  upon  receipt 
of  fixed  rentals,  but  it  is  mainly  the  owner  of  exhibition  live- 
stock, race  horses,  etc.,  who  uses  the  private  cars  in  this  way. 
The  shipper's  freight  charges  are  the  same  whether  his  stock 
is  shipped  to  market  in  private  or  railroad-owned  cars.  The 
carriers  frequently  make  up  livestock  trains  which  are  given 
complete  right  of  way  over  other  freight  trains  and  are 
moved  at  a  speed  approaching  that  of  passenger  trains.^ 

The  railroads  are  also  equipped  with  stockyards  at  various 
points  along  their  lines,  where  the  livestock  may  be  unloaded 
for  rest,  food  and  water.  They  are  required  by  law  to  unload 
the  livestock  at  the  end  of  a  specified  number  of  hours. 

Livestock  Contract. — Livestock  is  not  shipped  on  the  usual 
bills  of  lading  such  as  are  issued  for  grain,  cotton,  or  other 
inanimate  freight,  but  on  so-called  livestock  contracts.  In 
order  to  obtain  the  regular  livestock  rates  the  shipper  has  usu- 
ally been  obliged,  in  the  past,  to  agree  to  a  maximum  railroad 
liability  not  exceeding  fixed  values  per  animal,  and  also  to 
agree  *^to  load  and  take  care  of  and  to  feed  and  water  said 
stock  while  being  transported,  whether  delayed  in  transit,  or 
otherwise,  and  to  unload  the  same,"  and  to  absolve  the  carrier 
from  injuries  resulting  from  '^overloading,  crowding  upon  one 
another,  kicking  or  goring,  suffocating,  fright,  burning  of  hay 

^See  Bureau  of  Corporations:     The  Beef  Industry,  p.  15. 


I  J, .-I 


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172 


AGRICULTUEAL  COMMERCE 


or  straw  or  other  material  used  for  feeding  or  bedding,  or  by 
fire  from  any  cause  whatever,  or  by  heat,  cold  or  by  changes 
m  weather   or  for  delay  caused  by  stress  of  weather,  by  ob- 
struction  of  track,  by  riots,  strikes  or  stoppage  of  labor  or  for 
causes  beyond  their  control.-    Shippers  refusing  to  ship  on 
these  terms  were  required  to  pay  increased  freight  charges. 
A  federal  act,  effective  on  June  3,  1915,  however,  prohibits 
mterstate  carriers  from  fixing  limited  valuations  in  the  future, 
and  the  form  of  their  livestock  contract  will  therefore  have 
to  be  changed^    The  caretakers  who  are  carried  on  the  live- 
stock trams  free  of  charge  are  usually  required  to  release 
the  carreers  from  all  liability  for  personal  injury  by  sign- 
ing ^the   ^release-  contained  on  the  back  of  the  livestock  con- 

Transportetion  Chaxgres-The  railroad  rates  on  cattle  and 
sheep  shipped  from  local  points  to  the  central  markets  com- 
monly vary  according  to  whether  the  animils  are  shipped 
for  slaughter,  1.  e    are  -market^  or  "fat"  stock,  or  whether 
hey  are  ^stockers'^  or  ^^feeders'^  which  will  be  shipped  out  of 
the  central  markets  to  the  feeding  grounds  to  be  raised  and 
fattened.    The  former  kind  of  cattle  and  sheep  are  shipped  on 
the  so-called  "100  per  cent,  basis,-  and  the  latter  on  the  "75 
per  cent,  basis.-    The  original  intention  of  the  25  per  cent 
reduction  on  stockers  and  feeders  was  that  such  stock  would 
be  shipped  direct  from  the  ranges  to  the  feeding  grounds,  but 
when  the  practice  of  shipping  them  to  the  central  markets 
arose  it  was  generally  applied.     The  Interstate  Commerce 
Commission  has  refused  to  permit  an  increase  of  the  75  per 
cent   rates  on  the  grounds  that  the  market  value  of  stockers 

o'^fafSn  k  IZ  ^'''\''  ^'-'^  P^^  '''  P^"^<^«  1^««  than 
of  fat  stock,  that  they  are  less  subject  to  claims  for  shrinkage 

and  delay  and  that  while  market  cattle  and  sheep  are  fre- 
quently shipped  on  a  rapid  schedule,  the  stockers  and  feeders 
are  more  commonly  shipped  in  regular  freight  trains.^  Since 
hogs  are  usually  shipped  to  the  central  markets  for  slaughter, 
the  twofold  rate  basis  does  not  apply  to  them. 

^See  pp.  316,  317.  ' 

'23  I.  C.  C.  Eeporta  7. 


LOCAL  MARKET  FOR  LIVESTOCK 


173 


The  rates  on  livestock  also  vary  widely  according  to  points 
of  shipment  and  destination.  Usually,  however,  they  are  uni- 
form from  a  given  shipping  point  to  the  various  Missouri 
River  markets,  somewhat  higher  to  St.  Louis  and  still  higher 
to  Chicago.  The  rates  from  Fort  Worth  to  Kansas  City  and  St. 
Joseph  for  instance  are  33^  cents  per  100  pounds,  to  St.  Louis 
39J  and  to  Chicago  45J  cents,  and  from  Denver  to  Kansas 
City  and  Omaha  they  are  31  cents  as  compared  with  a  rate 
of  47  cents  to  Chicago.^  In  the  case  of  livestock  shipments 
from  points  in  New  Mexico,  Texas,  and  Oklahoma  to  Fort 
Worth,  Oklahoma  City,  and  Wichita,  the  Interstate  Com- 
merce Commission  has  enforced  a  mileage  scale,  under  which 
the  rates  gradually  increase  with  the  length  of  the  haul,  but 
not  in  exact  proportion  to  distance.  While  this  basis  does  not 
apply  throughout  the  West  it  illustrates  the  general  range  of 
livestock  rates.  Within  the  region  included  in  the  decision 
the  rates  vary  from  5J  cents  per  100  pounds  for  a  10-mile 
haul  to  8f  cents  for  50  miles,  17J  cents  for  200  miles,  32  cents 
for  500  miles,  44  cents  for  800  miles  and  52  cents  for  1,000 
miles.  ^ 

The  shippers  are  also  required  to  pay  for  the  feeding  of 
the  stock  in  transit.  They  commonly  buy  the  food  en  route 
and  not  infrequently  from  the  carriers  who  provide  a  supply 
at  the  unloading  yards.  If  the  carriers  do  the  feeding  they 
have  a  lien  on  the  livestock  for  the  food  provided  and  the 
services  rendered. 

Public  Regulation. — Nearly  all  the  stock-raising  states 
regulate  the  transportation  of  livestock  by  providing  in  spe- 
cial statutes  that  the  animals  shall  be  unloaded  for  food  and 
rest  at  the  end  of  a  given  number  of  hours — usually  28 — that 
stock  cars  shall  be  moved  at  the  rate  of  at  least  18  miles  per 
hour  on  the  main  line  and  12  miles  per  hour  on  branch  lines, 
and  that  free  transportation  and  prescribed  qaboose  facilities 
shall  be  provided  for  necessary  livestock  attendants.  Some 
states  have  additional  laws  providing  for  telegraphic  informa- 
tion as  to  stock-car  movements,  preference  to  livestock  in  the 

» 11  I.  C.  C.  Reports  277,  298;  13  I.  C.  C.  Reports  418. 
*22  I.  C.  C.  Reports  160. 


..V 


:l 


174 


AGRICULTURAL  COMMERCE 


matter  of  car  distribution,  etc.,  but  such  statutes  are  not  gen- 
eraL 

The  federal  government  also  has  enacted  a  statute  which 
requires  the  unloading  of  livestock  at  the  end  of  28  hours  if 
shipped  in  interstate  commerce.*  It  moreover  authorizes  the 
Secretary  of  Agriculture  to  establish  such  rules  and  regula- 
tions concerning  transportation  as  may  from  time  to  time 
seem  necessary  to  prevent  the  spread  of  contagious  and  in- 
fectious diseases  of  livestock,^  and  prohibits  the  shipment  of 
livestock  from  quarantined  zones  except  under  such  rules  of 
"inspection,  disinfection,  certification,  treatment,  handling 
and  methods  of  delivery  and  shipment  as  the  Secretary  may 
promulgate.'^  * 


n 


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Local  Inspection  of  Livestock 

The  Bureau  of  Animal  Industry  of  the  United  States  De- 
partment of  Agriculture  not  only  inspects  the  interstate  and 
foreign  shipments  of  livestock  at  the  central  and  seaboard 
markets,  but  in  regions  where  livestock  diseases  prevail  it 
inspects  the  animals  at  local  points  of  shipment  and  in  transit. 
Large  districts,  especially  in  the  southern  and  southwestern 
states,  are  quarantined  to  prevent  the  spread  of  Texas  and 
other  dangerous  fevers,  disease-carrying  ticks,  sheep  and  cattle 
scabies  and  cattle  mange.  Livestock  so  quarantined  may  not 
be  shipped  to  points  outside  the  quarantined  zone  without 
local  inspection,  and  in  the  case  of  scabies,  not  without  being 
dipped  or  otherwise  treated.  Certificates  such  as  are  shown 
in  Forms  17  or  18  having  been  issued  for  animals  not  actually 
afflicted,  they  may  be  shipped  to  outside  markets,  but  when 
possible,  care  is  taken  that  they  are  not  unloaded  in  pens  used 
for  stock  coming  from  districts  which  are  not  quarantined. 
The  original  certificate  is  mailed  to  the  Bureau  of  Animal 
Industry,  a  copy  is  attached  to  the  railroad  billing  accom- 
panying the  shipment  and  another  sent  to  the  inspection  offi- 

*Act  of  June  29,  1906. 
•Act  of  Feb.  2,  1903. 
'Act  of  Mar.  3,  1905. 


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j\ro.  A72156. 


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TL  9.  IB^pBxtmstA  j!f  A9HntIiitnr» 


CbfB  Certfflee  e^o^ 


.CATTLE 


originating  in  the  County  of.,.,  ..  ■  , .,,..  ,.. 

State  of  .   ^^/7  "'■  *  '*'*^  owwe^i  by 


(JiTame.) 

(Address.)  . 


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have  been  inspected  by  me  and  fowfm,  m€E  from 

^«,.  ^.-^^*^,^^^-p  scabies  (mange) 
any  symptoms  of  j^^^^^  j^^^^.  ^ 

have  been  inspected  and  found  to  have  been 
EXPOSKO  to  the  contagion  of  ^'^xc^fever^ 

have  been  inspected  and  found  to  be  larccTiD 

,..,vj.  scai)ies  (mange) 
^^^"'  Tejoas  fever 


and  have  been  dipped  ^^jic^i^ 


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and  m>ay  be  shipped  far. 
Shipped  via -- 


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Jmpector. 


(Date.)^ 


^19 


(Place.).. 


•This  cartlfkato  te  void  lO^days  after  data. 
(CAB  NUMBBSS  ON  BACK.) 


•-1M 


FOBM   18 


176 


LOCAL  MAKKET  FOR  LIVESTOCK 


177 


cials  of  the  state  in  which  the  shipment  originates.  Regions 
may  be  similarly  quarantined  to  prevent  the  spread  of  hog 
cholera.  Livestock  may  also  be  locally  inspected  and  tested 
with  a  view  to  detecting  tubercular  infection  and  eradicating 
the  disease,  and  railroad  cars  and  stockyards  may  be  inspected 
and  disinfected. 

Local  inspection  by  the  federal  government  is  supple- 
mented by  state  statutes  providing  for  the  inspection  by  state 
authorities  of  sick  and  suspected  animals,  the  establishing  of 
quarantine  zones,  the  dipping  of  sheep,  and  the  keeping  of 
railroad  cars  and  stockyards  in  a  sanitary  condition.  The 
federal  and  state  authorities  sometimes  cooperate  in  the  work 
of  checking  and  stamping  out  diseases  by  destroying  herds  of 
afflicted  animals,  regulating  the  shipment  of  livestock  from 
quarantined  zones,  and  preventing  the  shipment  of,  or  use  of, 
diseased  animals  for  food  purposes.  In  case  herds  afflicted 
with  contagious  diseases  are  condemned,  the  owner  is  com- 
pensated to  the  extent  of  their  value  as  food  animals,  the 
federal  and  state  governments  usually  sharing  the  expense. 


Methods  op  Selling  Livestock 

Soles  Througli  Central  Cammissianmen. — The  livestock 
shipped  by  western  stock  growers  to  the  central  stockyards  is 
usually  sold  through  commissionmen  or  brokers.  A  carload 
is  frequently  consigned  to  a  commissionman,  the  owner  in- 
trusting him  with  the  entire  care  and  sale  of  the  animals. 
The  commissionman  divides  them  into  lots  or  "bunches"  with 
a  view  to  obtaining  the  highest  current  prices,  and  sells  them 
to  meat  packers,  wholesale  slaughterers,  feeders,  breeders, 
stocker,  eastern  buyers,  speculators  or  traders,  and  exporters. 
The  selling  commissions  are  regulated  by  livestock  exchanges, 
the  general  charge  per  head  being  50  cents  for  cattle,  25  cents 
for  calves,  and  10  to  15  cents  for  hogs  and  sheep,  with  maxi- 
mum charges  per  carload  ranging  from  $6  to  $12. 

At  the  time  of  sale  the  price  is  fixed  in  terms  of  so  much 
per  one  hundred  pounds,  the  entire  amount  being  determined 


I'. 


1 1 


I  ' 


iaO^ 


178 


AGRICULTURAL  COMMERCE 


LOCAL  MARKET  FOR  LIVESTOCK 


179 


after  the  animals  have  been  weighed  by  official  exchange 
weighmasters.  The  owner  is  obliged  to  pay  the  freight 
charges  from  local  shipping  point  to  the  central  market,  the 
cost  of  feeding  his  livestock,  a  yardage  charge,  and  at  some 
places  a  terminal  or  transfer  charge  for  switching  the  cars 
from  the  railroad  to  the  stockyards.  After  deducting  all  such 
charges  and^his  commission  from  the  amount  realized  on  the 
sale,  the  commissionman  sends  the  balance  to  the  stockman  by 
bank  draft  or  check.  Usually  even  before  final  settlement  the 
non-resident  shipper  receives  a  statement  of  the  gross  proceeds 
of  the  sale  with  necessary  deductions. 

In  the  past  the  central  commissionmen  frequently  financed 
stock  raisers  and  feeders  who  required  funds  between  seasons, 
taking  chattel  mortgages  on  their  livestock  as  security  for 
loans.  This  system  has  largely,  although  not  entirely,  disap^ 
peared,  for  a  larger  number  of  stockmen  have  in  recent  years 
been  able  to  finance  themselves,  and  others  are  able  to  obtain 
funds  from  local  banks  which  are  financially  stronger  than 
they  were  in  the  past. 

Cooperative  Livestock  Shipping  Associations^  —A  recent 
development  in  livestock  marketing  is  the  formation  by  stock 
growers  of  cooperative  shipj^ng  associations.  The  movement 
has  become  of  general  importance  since  1908  but  there  are 
instances  of  successful  "lamb  clubs"  organized  over  twenty 
years  ago.^  These  associations  enable  farmers,  who  do  not 
raise  a  sufficient  number  of  animals  to  ship  individually  car- 
load lots,  to  combine  their  shipments  into  lots  of  sufficient 
size  and  thus  to  avoid  selling  to  local  dealers.  The  manager 
of  such  an  association  ships  the  livestock  of  members  directly 
to  the  central  markets,  sees  that  it  is  properly  cared  for  en 
route,  and  sells  it  through  central  commissionmen  in  the  same 
way  that  carload  shipments  are  usually  sold.  The  associations 
may,  however,  obtain  bids  directly  from  central  market  buy- 


T  Z    l^:     '*^"^'  '^^^  Cooperative  Lamb  Club  as  an  Agency  for 

Lower  Marketing  Costs,  The  Annals  of  the  American  Academy  of 
^ohttcal  and  Social  Science,  Nov.,  1913,  pp.  216-222;  L.  D.  H.  Weld: 
Statistics  of  Cooperation  among  Farmers  in  Minnesota,  Minnesota 
!A.gricultural  Experiment  Station  Bulletin  No.  146,  pp    17-18 


ers.  In  either  case  the  usual  effect  of  the  associations  is  to 
reduce  marketing  costs  and  to  obtain  higher  prices  than  those 
offered  by  local  livestock  dealers. 

Sales  to  Local  Livestock  Dealers. — In  regions  where  the 
livestock  industry  is  of  secondary  importance  or  wherever  the 
individual  farmers  have  less  than  full  carloads  of  stock  for 
sale,  and  have  not  organized  cooperative  shipping  associations, 
they  may  sell  to  local  livestock  dealers.  These  dealers,  many 
of  whom  are  themselves  farmers,  canvass  the  surrounding 
community  for  surplus  stock,  and  when  they  have  a  carload 
ship  it  to  the  central  markets  where  they  sell  it  in  the  same 
way  that  large  ranchers  do.  They  usually  buy  on  their  own 
account,  the  prices  which  they  pay  to  the  farmers  being 
largely  the  result  of  personal  bargaining. 

Sales  to  Local  Slaughterers  and  Eetail  Butchers. — Farm- 
ers sell  a  portion  of  their  livestock  to  local  slaughterers  and 
retail  butchers,  some  of  whom  depend  upon  the  surrounding 
agricultural  community  for  all  or  part  of  their  meat  supply. 
In  1909,  for  example,  the  Census  Office  reported  that 
7,000,000  cattle  and  calves,  2,750,000  hogs  and  1,750,000 
sheep  were  slaughtered  in  retail  establishments. 

Private  Sales  to  Packers. — Western  ranchers  and  feeders 
sometimes  sell  their  stock  directly  to  meat-packing  concerns 
which  may  send  buying  agents  to  contract  privately  for  the 
delivery  of  a  specified  number  of  carloads.  The  packers  of  the 
Mississippi  and  Ohio  Eiver  valleys,  however,  buy  most  of  their 
supply  in  the  public  stockyards  at  current  prices  which  are 
known  alike  by  sellers  and  buyers.  It  is  only  on  the  Pacific 
Slope  that  the  private  sale  by  stock  grower  to  packer  is  a  com- 
mon method  of  selling  livestock.*  At  a  few  places  such  as 
San  Francisco  and  Portland  public  livestock  markets  have 
been  established  and  sales  may  be  made  through  commission- 
men,  but  even  there  the  stock  growers  and  packers  may  deal 
directly  with  each  other. 

Private  Sales  to  Feeders. — While  the  feeders  obtain  most 
of  their  unfed  stock  in  the  central  stockyards  they  also  buy 

*F.  Andrews:     Marketing  Grain  and  Livestock  in  the  Pacific 
Coast  Eegion,  pp.  92-93. 


\i 


^-'- 


; 


180 


AGRICULTURAL  COMMERCE 


cattle  and  sheep  directly  from  ranches  and  farmers  at  private 
sale.  Relatively  few  hogs  are  sold  to  feeders,  because  the 
farmers  usually  fatten  them  for  the  market,  and  recently  the 
farmers  have  to  an  increasing  extent  undertaken  the  feeding 
of  lambs.  There  are  many  professional  feeders,  however,  who 
fatten  native  lambs  and  western  sheep  and  lambs  and  many 
who  feed  western  range  cattle  for  final  sale  in  the  central 
markets. 

BIBLIOGRAPHY 

See  references  designated  by  an  *,  appended  to  chapter  IX. 
pp.  200,  201.  ' 


l!  . 


i  : 


CHAPTER   IX 

CENTRAL  LIVESTOCK  MARKETS 


As  the  livestock  industry  gradually  moved  from  the  At- 
lantic seaboard  to  the  western  ranges  two  thousand  miles 
inland,  the  central  livestock  markets  followed  in  its  trail. 
They  are  in  most  instances  packing  and  slaughtering  centers, 
for  the  refrigeration  car  service  has  made  it  more  economical 
to  ship  dressed  meat  and  meat  products  to  distant  markets 
than  to  ship  the  live  animals.  Livestock  is  even  now  shipped 
from  the  ranges  to  the  central  markets,  a  distance  in  some 
instances  of  a  thousand  miles,  and  many  carloads  are  shipped 
to  eastern  markets,  but  the  stock  movement  is  mainly  from 
the  ranges,  ranches,  farms  and  feeding  grounds  to  the  central 
markets  of  the  Mississippi  and  Ohio  valleys. 

Central  Market  Receipts. — Cincinnati  was  the  original 
western  packing  center,  and  still  remains  a  market  of  impor- 
tance, and  Cleveland,  Detroit,  Indianapolis  and  Louisville  are 
also  Ohio  Valley  markets  of  considerable  moment.  The  prin- 
cipal western  market,  however,  has  long  been  at  Chicago,  for 
it  is  there  that  the  great  packing  concerns  first  constructed 
their  plants  and  still  purchase  from  21  to  25  per  cent,  of  the 
packing  output  of  the  western  livestock  states.  From  2,- 
500,000  to  nearly  3,500,000  cattle,  6-  to  9,000,000  hogs,  and 
5-  or  6,000,000  sheep  are  annually  sold  in  the  Chicago  mar- 
ket. Twenty-four  railroads  carry  livestock  to  Chicago  not 
only  from  the  surrounding  feeding  grounds,  but  from  the 
local  shipping  points  and  smaller  central  markets  of  the  trans- 
Mississippi  Valley. 

-  As  is  shown  in  Map  No.  VII  and  Table  No.  VIII,  though 
Chicago  is  the  greatest  central  market,  many  others  have  been 
established  beyond  the  Mississippi  River.     The  packers  look 

181 


(y> 


182 


AGRICTTLTITRAL  COMMERCE 


!! 


tt'il 


i 


^(1 


upon  them  as  ''subsidiary  markets,"  at  which  some  of  their 
plants  are  located  and  from  which  their  Chicago  plants  re- 
ceive a  part  of  their  stock  supply.    In  the  words  of  one  of  the 
principal  packers,  ''not  only  have  the  packers  built  up  a 
great  central  cash  market   (Chicago),  but  they  have  gone 
out  to  meet  the  cattlemen  by  establishing  subsidiary  markets 
in  the  heart  of  the  cattle  industry.     These  outposts  of  the 
packing  industry  have  had  their  advantages  to  their  owners, 
but  I  believe  they  have  carried  still  greater  advantages  to  the 
cattlemen  ...  in  that  they  shorten  his  haul  to  market.    This 
not  only  means  a  saving  of  freight,  but  the  avoiding  of  shrink- 
age in  weight  and  deterioration  in  quality.    It  also  means  that 
at  the  time  of  sharp  demand  he  can  get  his  cattle  into  the  near 
market  in  time  to  realize  the  high  price,  while  he  would  not, 
perhaps,  be  able  to  rush  them  into  the  distant  central  market 
before  the  extraordinary  demand  would  be  satisfied  and  prices 
drop  back  again.  .  .  .  The  subsidiary  market  has  immensely 
influenced  the  general  production  of  a  better  quality  of  beef 
by  facilitating  the  feeding  or  'finishing'  of  cattle  brought  in 
from  the  ranges.  .  .  .  The  extension  of  the  packing  industry 
to  these  points  has  changed  the  agricultural  map  of  the  states 
tributary  to  these  auxiliary  markets,  making  them  the  richest 
feeding  grounds  in  the  country."  ^     The  chief  trans-Missis- 
sippi central  markets  are  at  Kansas  City,  Omaha,  St.  Louis, 
St.  Joseph,  St.  Paul,  Sioux  City,  Fort  Worth,  Denver,  Wi- 
chita, Ottumwa,  Cedar  Rapids  and  Oklahoma  City.    The  re- 
ceipts of  the  first  four  of  these  markets  have  become  so  large 
that  they  can  at  present  scarcely  be  regarded  as  mere  auxiliary 
markets. 

The  Ohio  Valley  and  middle-western  markets,  including 
in  addition  to  those  previously  mentioned  (page  181)  Mil- 
waukee, Cudahy  and  Peoria,  are  chiefly  important  as  hog 
markets,  although  they  also  receive  large  numbers  of  cattle 
and  sheep. 

Central  Market  Competition. — The  livestock  buyers  at  the 
central  markets  of  the  West  are  principally  the  large  western 
packers,  smaller  western  packers  and  wholesale  slaughterers, 

*  J.  O.  Armour:    The  Packers,  etc.,  pp.  116-117. 


^ 


CENTRAL  LIVESTOCK  MARKETS 


183 


TABLE  VIII 
Receipts  and  Shipments  at  Fourteen  Central  Markets* 


Receipts 

Shipments 

Markets 

1905 

1910t 

1905 

1910t 

Chicaffo 

16,848,383 
6,249,098 
5,290,850 
4,351,950 
3,427,955 
2,162,239 
1,758,212 
2,043,929 
1,547,018 
1,222,474 
1,400,123 

928,552 
1,059,461 

489,524 

14,708,171 
6,433,881 
6,102,717 
4,681,377 
2,476,790 
2,304,363 
1,633,747 
1,722,940 
1,019,879 
1,181,409 
1,774,702 
2,032,550 
920,395 
366,070 

4,822,561 
1,429,365 
1,502,967 
996,297 
492,765 
997,484 
554,355 
904,805 
173,828 
888,496 
364,900 
293,497 
606,130 
415,467 

4,043,421 

Kansas  City 

Omalia    

1,864,751 
2,356,262 

St   JjOuis 

1,222,906 

St.  Joseph 

St  Paul 

332,190 
1,235,696 

Sioux  City 

Cincinnati 

Cleveland 

T)pnvpr    

478,902 
827,975 
272,655 
814,797 

J  oo  o  cro 

Fort  Worth 

Indianapolis 

Louisville 

Peoria 

438,858 
775,628 
693,167 
353,019 

Total     

48,779,768 

47,358,991 

14,442,917 

15,710,227 

-r^               irkrvE! 

♦  Bureau  of  Statistics:  Monthly  Summary  of  Finance  and  Commerce,  Dec,  1905, 
and  1910— including  cattle,  calves,  hogs,  sheep  and  lamDs. 
t  Wichita,  795.  732. 
: :  Wichita,  151,  317. 

eastern  packers  and  slaughterers,  exporters,  stockers  and  feed- 
ers The  feeders,  however,  can  scarcely  be  regarded  as  the 
competitors  of  packers  and  slaughterers,  for  their  business  is 
mainly  to  purchase  "feeders,"  prepare  them  for  market  and 
then  sell  them  to  the  packers  and  slaughterers ;  they  do  not 
compete  for  fat  stock  which  is  ready  for  the  market.  Eastern 
packers  and  slaughterers  are  competitive  factors  in  the  western 
markets  but  are  of  declining  importance,  because  long-estab- 
lished practice  has  shown  it  to  be  more  economical  to  ship  the 
dressed  meat  from  the  West  than  to  ship  the  live  animals. 
Though  New  York,  Boston,  Baltimore  and  Philadelphia  each 
receive  from  1-  to  5,000,000  live  animals  annually,  their  pack- 
ers and  slaughterers  depend  largely  upon  the  eastern  states 
for  their  supply,  and  provide  but  a  small  proportion  of  total 
meat  consumption  of  the  cities  in  which  they  are  located. 


M 


184 


AGRICULTUKAL  COMMERCE 


The  smaller  western  packers  and  slaughterers  have  always 
been  a  source  of  competition  in  the  central  markets,  but  one 
of  limited  scope.  In  the  cattle  trade  it  has  been  pointed  out 
that  although  the  six  largest  western  packing  companies  kill 
but  45  per  cent,  of  the  annual  slaughter  of  cattle  in  the  entire 
United  States,  they  ''pack  nearly  98  per  cent,  of  all  the  cattle 
killed  in  the  eight  leading  western  packing  centers.  Their 
proportion  of  the  beef  cattle  purchased  in  these  eight  markets 
is  somewhat  smaller,  because,  especially  at  Chicago,  a  consid- 
erable number  of  cattle  are  bought  by  other  concerns  for  ship- 
ment alive  to  eastern  points  and  to  Europe  where  they  are 
slaughtered.^'  ^ 

On  the  whole  there  is  less  active  competition  in  the  cen- 
tral livestock  markets  than  in  the  primary  grain  and  central 
cotton  markets,  because  the  number  of  competitive  buyers  is 
more  limited.    There  is  also  less  active  competition  between 
the  livestock  centers,  because  the  principal  buyers  are  the 
same  in  most  of  the  largest  western  markets.^    Each  of  the 
six  great  packing  companies,  for  example,  have  plants  at  Chi- 
cago and  Kansas  City,  four  of  them  in  Omaha  and  St.  Louis, 
and  three  in  St.  Joseph.     Inter-market  competition  in  the 
cattle  industry  is  also  modified  in  that  to  some  extent  the 
trans-Mississippi  markets  purchase  different  grades  than  are 
bought  at  Chicago  and  other  middle-western  points.     They 
depend  to  a  larger  extent  upon  the  grass-fed  cattle  of  the 
northwestern  and  southwestern  ranges,   while   the   Chicago 
market  receives  more  native  stock  and  western  and  Texas 
cattle  which  have  been  fattened  for  the  market.    Though  there 
is  some  competition  between  "feeders  and  stockers"  and  fed 
cattle,  the  prices  paid  for  the  former  are  lower  and  do  not  uni- 
formly fluctuate  with  the  prices  paid  at  Chicago  for  corn-fed 
stock. 

The  stock  grower  is  not,  however,  in  a  helpless  position. 


*  Bureau  of  Corporations:  The  Beef  Industry  (1905),  pp.  xxi, 
o7-ol. 

»  Chief  packing  companies  are :  Armour  &  Co.,  Swift  &  Co.,  Mor- 
ns &  Co.,  Schwarzchild  &  Sulzberger  Co.,  National  Packing  Co  and 
the  Cudahy  Packing  Co.  '* 


CENTRAL  LIVESTOCK  MARKETS 


1S5 


The  increased  demand  for  meat  as  compared  with  its  supply 
has  in  recent  years  resulted  in  a  higher  price  for  livestock ; 
the  foreign  market  for  cattle  is  at  all  times  available,  and  may 
be  used  whenever  differences  in  prices  warrant;  the  smaller 
packers  and  slaughterers  of  the  West  and  East  are  appreciable 
factors  in  the  livestock  market;  and  the  probability  of  "po- 
tential competition"  would  prevent  an  unreasonable  and  per- 
manent depression  of  livestock  prices  as  compared  with  the 
price  of  dressed  meats  and  meat  products.  During  the  great 
packing-house  strike  of  1904,  for  example,  the  increased  pur- 
chases of  the  smaller  packers  and  slaughterers  did  much  to 
support  the  livestock  markets.  "The  strike  made  evident  the 
fact  that  there  are  hundreds  of  slaughtering  establishments 
which  now  operate  at  much  less  than  their  full  capacity,  and 
that  it  is  a  matter  of  a  few  days  only  for  them  materially  to 
increase  their  output."  ^ 

Shipment  from  Central  Markets.— Only  about  20  per 
cent,  of  the  hogs,  less  than  40  per  cent,  of  the  cattle  and  35 
to  over  40  per  cent,  of  the  sheep  annually  sold  in  the  central 
livestock  markets  of  the  West  are  shipped  out  of  them  as  live 
animals.  These  shipments,  moreover,  are  gross  rather  than 
net,  for  the  central  markets  ship  to  one  another,  Chicago  and 
other  middle-western  markets  regularly  receiving  many  ani- 
mals which  were  originally  sold  by  the  stock  growers  in  the 
markets  of  the  trans-Mississippi  Valley.  The  bulk  of  the 
livestock  received  at  the  central  markets  of  the  West  is 
slaughtered  by  the  western  packers  and  wholesale  slaughterers 
and  is  shipped  to  all  parts  of  the  United  States  and  to  many 
foreign   markets   in   the  form   of   dressed   meat   and  meat 

products. 

The  live  animals  shipped  out  of  the  central  markets  are 
variously  disposed  of:  (1)  Feeders  are  shipped  to  nearby 
farms  and  feeding  grounds,  to  be  returned  to  the  central  mar- 
kets for  final  sale.  Many  of  the  stockers  are  similarly  han- 
dled, although  some  of  them  are  retained  on  the  farms  for 
dairy  or  breeding  purposes.  (2)  Many  of  the  shipments,  par- 
ticularly from  the  trans-Mississippi  markets,  are  destined  to 

» Bureau  of  Corporations:    The  Beef  Industry,  p.  84. 


!  -i 


I 


186 


^ 


! 


AGRICULTURAL  COMMERCE 


Chicago,  Indianapolis,  Cleveland,  Detroit,  Cincinnati,  Louis, 
ville  and  other  central  markets  in  the  Ohio  Valley.  (3)  Some 
livestock  is  regularly  shipped  from  the  western  stockyards  to 
eastern  livestock  markets  such  as  Buffalo  and  Pittsburgh  in 
the  interior  and  :N'ew  York,  Boston,  Baltimore  and  Philadel- 
phia on  the  seaboard,  to  be  slaughtered  by  eastern  packers  and 
slaughterers. 

(4)  While  during  the  years  1890  to  1908  from  300,000 
to  nearly  600,000  live  cattle  were  annually  exported  to  for- 
eign markets,  since  then  the  yearly  exports  have  varied  from 
100,000  to  200,000.  Although  these  exports  pass  through  the 
ports,  they  originate  largely  in  the  western  stock  centers, 
mainly  in  Chicago,  and  they  are  destined  largely  to  Great 
Britain.  Many  forms  of  meat  products  are  shipped  to  Ger- 
many, Holland,  Belgium,  France  and  other  European  coun- 
tries, and  to  the  West  Indies,  Canada,  Brazil  and  other  non- 
European  countries,  but  these  countries  provide  a  market  for 
relatively  few  American  beef  cattle.  The  annual  exports  of 
American  sheep  and  hogs  have  never  exceeded  270,000  and. 
60,000  respectively. 

The  livestock  shipped  out  of  the  western  centers  is  gen- 
erally purchased  at  the  stockyards  of  those  markets.  The 
feeders  and  stockers  are  purchased  by  farmers  and  profes- 
sional stockmen ;  the  eastern  shipments  by  eastern  packers  and 
slaughterers,  and  the  export  cattle  by  western  packers  and 
export  concerns  or  by  exporters  located  at  the  eastern  ports. 
The  stock  shipped  from  one  western  center  to  another  may  be 
purchased  either  at  the  shipping  or  at  the  receiving  center  by 
any  of  the  various  types  of  central  cattle  buyers. 

Relative  Importance  of  Packers  and  Wholesale  Slaugh- 
terers.—The  Thirteenth  Census  of  the  United  States  reported 
the  relative  proportions  of  the  total  slaughter  of  cattle,  sheep 
and  hogs  by  packing  and  wholesale  slaughtering  plants,  re- 
tailers and  farmers  during  the  year  1909  to  be  as  shown  in 
the  table  on  the  following  page. 

Functions  of  Central  Markets.— (1)  The  livestock  centers 
of  the  Mississippi  and  Ohio  valleys  serve  as  great  cash  mar- 
kets where  cattle,  hogs,  sheep,  horses  and  other  meat  and 


I 


CENTRAL  livestock:  MARKETS 


187 


Livestock* 

Per  Cent.  Killed 

by  Packers 

and  Wholesale 

Slaughterers 

Per  Cent.  Killed 
by  Retailers 

Per  Cent.  Killed 
on  Farms 

Cattle 

59.6 
38.4 
83.2 
63.6 

30.0 

44.2 

13.2 

7.5 

10.3 

Calvef' 

17.4 

SheeD 

3.6 

Hoes 

28.9 

♦  U.  S.  Census,  Vol.  X  (1910),  p.  344. 

draft  animals  may  be  sold  by  stock  growers,  feeders  and  local 
dealers.  (2)  They  provided  facilities  for  the  handling,  care, 
feeding,  weighing,  buying  and  selling  of  livestock,  and  the 
financing  of  sales.  (3)  Through  their  exchanges  they  enforce 
rules  governing  the  purchase  and  sale  of  livestock.  (4)  They 
facilitate  the  collection  of  information  as  to  the  supply,  de- 
mand, and  other  considerations  influencing  the  trade.  (5) 
While  livestock  prices  are  not  general  as  are  those  of  grain, 
and  cotton,  the  central  markets  do  much  to  facilitate  the  quo- 
tation and  publication  of  prices.  (6)  They  serve  as  cential 
points  from  which  livestock  may  conveniently  be  shipped  to 
stockmen,  feeders  and  eastern  buyers,  and  be  exported  to  for- 
eign markets.  (7)  Most  of  the  central  markets  are  great 
packing  and  slaughtering  centers,  indeed,  they  are  the  final 
market  for  about  70  per  cent,  of  their  entire  receipts  of 
cattle,  hogs  and  sheep.  (8)  Their  concentration  of  large 
numbers  of  animals  at  relatively  few  places,  and  their  close 
connection  with  packing  and  slaughtering  plants  greatly  fa- 
cilitate the  federal  and  state  inspection  of  livestock  and  meats. 

Oeganization  and  Description  of  Central  Markets 

The  Stockyards.— The  livestock  trade  of  the  central  mar- 
kets is  conducted  at  large  stockyards  owned  and  operated  by 
stockyard  companies.  Usually  nearly  all  the  business  of  a 
particular  market  is  confined  to  the  yards  of  a  single  large 
company,  such  as  the  Union  Stock  Yards  and  Transit  Co.  of 


I. 

I 


188 


AGKICULTUKAL  COMMERCE 


Chicago,  the  Kansas  City  Stock  Yards  Co.,  the  IJnion  Stock 
Yards  Co.  of  Omaha,  and  the  St.  Louis  National  Stock  Yards. 
These  companies  are  owned  largely  by  the  packing  concerns 
and  the  railroads,  but  the  yards  are  open  markets  available  to 
all  who  desire  to  buy  or  sell  livestock.  They  are  located  in 
the  suburbs  of  the  cities,  the  yards  and  nearby  packing  and 
slaughtering  plants  being  the  basis  of  packing  towns  of  con- 
siderable population  and  area.  The  Union  stockyards  at 
Chicago  have  an  area  of  500  acres  and  are  able  at  one  time  to 
hold  75,000  cattle,  135,000  sheep,  300,000  hogs  and  6,000 
horses  and  mules.^ 

The  stockyards  are  divided  into  sections  and  blocks  with 
main  driveways,  alleys  and  overhead  viaducts.  They  are  fully 
equipped  with  stock  houses  and  pens,  feed  and  water  boxes 
and  troughs,  running  water,  receiving  and  shipping  plat- 
forms, railroad  switching  tracks  and  scales.  Adjacent  to 
them  are  packing  and  slaughtering  plants,  and  nearby  are 
the  offices  of  the  commissionmen  or  brokers  who  do  the  buying 
and  selling  for  their  customers,  and  banks  where  balances 
may  be  settled.  The  companies  provide  the  necessary  number 
of  employees  to  feed,  water  and  weigh  the  stock,  issue  weight 
tickets  and  keep  the  yards  in  a  sanitary  condition. 

Livestock  Exchanges.— The  buying  and  selling  is  con- 
ducted in  accordance  with  the  rules  of  the  livestock  exchanges 
which  have  been  organized  at  the  western  markets.  In  case  of 
the  Chicago  Live  Stock  Exchange,  for  example : 

Any  person  of  good  character  and  credit,  and  of  legal  age, 
whose  interests  are  centered  at  the  Union  Stock  Yards  of  Chi- 
cago, Illinois,  on  presenting  a  written  application,  endorsed 
by  two  members,  and  stating  the  name  and  business  avocation 
of  the  applicant,  after  ten  days'  notice  of  such  application  shall 
have  been  posted  on  the  bulletin  of  the  Exchange,  may  be  ad- 
mitted to  membership  in  the  Exchange,  upon  approval  by  at 
least  seven  affirmative  ballot-votes  of  the  Board  of  Directors, 
and  upon  payment  of  an  initiation  fee  of  fifteen  hundred  dol- 
lars— $1,500 — or  on  presentation  of  a  certificate  of  unimpaired 

*  Frank  Andrews:     *'Cost  and  Methods  of  Transporting  Meat 
Animals,*'  U.  S.  Department  of  Agriculture  Year  Book   a908)    d 
236.  ^'  ^ 


CENTRAL  LIVESTOCK  MARKETS 


189 


or  unforfeited  membership,  duly  transferred,  and  by  signing 
an  agreement  to  abide  by  the  Rules,  Regulations  and  By-Laws 
of  the  Exchange,  and  all  amendments  that  may,  in  due  form, 
be  made  thereto. 


The  organization  of  the  livestock  exchanges  is  similar  to 
that  of  grain  and  cotton  exchanges.  They  have  a  president; 
one  or  more  vice-presidents;  a  secretary;  treasurer;  and 
arbitration,  appeals,  prosecuting  and  other  committees.  They 
have  regulations  prohibiting  the  violation  of  the  stock  in- 
spection rules,  dealing  in  condemned  livestock,  wash  sales, 
fictitious  price  quotations  and  rebates,  improper  solicitation 
of  livestock  consigned  to  another  member  of  the  exchange, 
and  other  practices  regarded  as  undesirable.  They  fix  the 
hours  during  which  trade  may  be  conducted  and  the  mini- 
mum commissions  charged  for  buying  and  selling.^ 

The  livestock  exchanges,  however,  differ  widely  from  the 
large  grain  and  cotton  exchanges  in  that  they  are  spot  or  cash 
markets.  There  are  certain  so-called  "speculators"  and  "yard- 
traders"  at  the  stockyards,  but  as  speculative  "futures"  are 
not  bought  and  sold  on  the  livestock  exchanges  they  are 
obliged  to  conduct  a  cash  business. 

Sales  at  the  Stockyards. — Stock  cars  are  usually,  though 
not  always,  timed  so  that  the  livestock  arrives  at  the  yards 
early  in  the  morning.  The  stock  is  there  unloaded,  driven  to 
selling  pens,  and  fed  and  watered.  The  commissionman  act- 
ing for  the  shipper  then  divides  the  animals  into  "bunches" 
of  from  one  to  several  hundred  with  a  view  to  adjusting  the 
number  to  the  needs  of  a  prospective  buyer  or  to  obtaining 
uniformity  in  character  and  quality.  "Such  uniformity," 
states  the  Bureau  of  Corporations,  "makes  it  easier  to  deter- 
mine the  value  of  the  bunch  than  would  be  the  case  if  the 
animals  were  mixed.  This  classification  for  the  purpose  of 
sale,  which  is  sometimes  made  at  the  instance  of  the  buyers, 
but  more  often  at  that  of  salesmen,  is  most  conspicuous  in 
the  case  of  cattle.  A  mixed  shipment  of  cattle  is  usually  di- 
vided according  to  sex,  cows  are  separated  from  heifers,  bulls 

^  See  chap,  viii,  p.  177. 


J; 


ii^ 


190 


AGRICULTUKAL  COMMERCE 


and  stags  from  steers,  and  often  there  is  a  further  subdivision 
of  steers  according  to  age  or  quality.''  ^ 

The  sales  are  made  in  terms  of  one  hundred  pounds,  final 
settlement  being  made  after  the  animals  have  been  weighed 
on  scales  which  are  usually  in  charge  of  weigh  masters,  and 
which  hold  from  fifty  to  sixty  cattle  at  one  time.  The  weight 
tickets  issued  at  the  scales,  which  are  the  basis  of  settlement, 
show  the  number  of  animals  weighed,  their  weight  and  the 
names  of  the  commissionman  and  buyer.  Animals  which  the 
federal  or  state  inspectors  have  not  found  to  be  diseased  are 
then  taken  to  the  packing  and  slaughtering  plants  or  to  ship- 
ping pens  for  shipment  to  farms,  feeding  grounds  and  eastern, 
western  or  foreign  markets. 

In  settling  for  the  livestock,  the  commissionman,  repre- 
senting the  original  owner,  makes  out  a  bill  on  the  basis  of 
the  weight  shown  in  the  scale  ticket  or  record  and  the  price 
per  one  hundred  pounds  agreed  upon.  The  buyer  indorses 
the  bill  and  returns  it  to  the  commissionman  with  order  or 
check  attached,  and  when  paid  by  the  bank  the  accepted  bill 
serves  as  the  coinmissionman's  receipt  of  the  transaction.  He 
then  deducts  from  the  gross  proceeds  the  railroad  freight 
charges,  feeding  costs,  weighing  fees  or  yardage,  transfer 
(switching)  charges  if  any  are  due,  and  his  commission,  and 
pays  the  balance  to  the  shipper.  If  his  customer  is  non-resi- 
dent he  usually  sends  a  statement  of  gross  proceeds  and  deduc- 
tions to  him  immediately  after  the  sale,  and  a  check  or  draft 
after  settlement  has  been  made.  There  are  one  or  more  banks 
of  good  credit  near  each  of  the  large  stockyards  which  make 
a  special  business  of  financing  livestock  transactions. 

Marketing  Costs. — The  cost  of  marketing  livestock  varies 
to  some  extent  in  the  different  central  markets.  Usually  there 
is  no  special  charge  for  the  general  use  of  the  stockyards,  but 
there  is  a  weighing  charge  sometimes  called  "yardage"  of  say 
25  cents  per  head  of  cattle,  10  cents  of  calves,  6  or  8  cents  of 
hogs  and  5  cents  of  sheep.  In  case  the  stock  is  fed  at  the 
yards,  the  stockyard  company  also  charges  for  the  food  at  spe- 
cified prices  per  100  pounds  of  hay  or  alfalfa  or  per  busheLof 

*  The  Beef  Industry,  p.  16. 


CENTRAL  LIVESTOCK  MARKETS 


191 


corn  or  oats.  At  Chicago  the  carriers  collect  an  additional 
terminal  charge  of  $1.00,  formerly  $2.00  per  car,  for  switching 
the  cars  to  the  stockyards.  The  commissionman's  charge  like- 
wise is  a  marketing  cost  to  the  shipper,  and  so  are  the  rail- 
road freight  charges,  and  if  the  stock  is  shipped  from  distant 
points,  the  cost  of  feeding  en  route.^ 

The  total  cost  of  shipping  a  steer  from  the  ranges  of  the 
northwestern  grazing  grounds  to  Chicago  and  marketing  it  at 
that  center  varies  approximately  from  $5  to  $9.  The  various 
items  are  substantially  as  follows: 

Low  High 

Trailing  to  local  shipping  point....    $0.05  $0.25 

Railroad  freight   3.85  7.26 

Feed  en  route  (at  $2  per  car) 16  .32 

Shippers  in  charge  ($12  per  car) 08  .08 

Switching  charges  at  Chicago  (at  $1 

per  car) 04  .04 

Feed  at  Chicago 25  .25 

Yardage  at  Chicago 25  .25 

Commission  at  Chicago 50  .50 

p  

Total $5.18  $8.95 


Livestock  and  Meat  Inspection  at  Central  Markets 

There  is  no  public  or  exchange  inspection  of  livestock  for 
the  purpose  of  establishing  commercial  classes  or  grades. 
Some  of  the  livestock  exchanges  have  established  rules  gov- 
erning the  dockage  and  shrinkage  of  hogs,  and  have  inspectors 
to  enforce  their  rules  and  determine  the  number  of  unmer- 
chantable and  inferior  hogs  in  a  given  lot.  Some  of  them  also 
have  brand  inspectors  to  ascertain  errors  or  dishonesty  in  the 
brands  of  western  and  Texan  cattle,  but  commercial  classifi- 
cation and  grading  is  left  to  the  individual  sellers,  commis- 
sionmen  and  buyers. 

Public  inspection  of  livestock  at  the  central  yards  is  con- 
cerned with  disease,  ^sanitation  and  public  health.     The  Bu- 

^  See  chap,  viii,  p.  172. 


m 


j 


192 


AGKICTTLTUKAL  COMMERCE 


reau  of  Animal  Industry  of  the  Department  of  Agriculture  is 
equipped  with  livestock  and  meat  inspectors,  chemists,  patrol- 
men, etc.,  for  the  inspection  of  interstate  and  foreign  ship- 


U.5.5U5PECT 

8925 


U.5X0NDEMNED 

75519 


Form  19 


ments  of  livestock  and  meats  in  all  their  stages  of  slaughter- 
ing, curing,  canning  or  other  preparation.  The  federal  in- 
spection laws  also  provide  for  sanitary  equipment,  conditions 


•  U.S.* 


QO   E  00 


Form  QO 


and  methods,  and  prohibit  the  use  of  harmful  chemicals  and 
preservatives  and  of  misleading  brands.^ 

^  Acts  of  Aug.  30,  1890,  Mar.  22,  1898,  and  June  30,  1906. 


CENTRAL  LIVESTOCK  MARKETS 


193 


When  subjected  to  the  ante-mortem  examination  the  ani- 
mals are  tagged  as  "passed,"  "condemned"  or  "U.  S.  suspect," 
each  tag  being  numbered  {See  Form  No.  19).  Condemned 
animals  may  not  be  sold,  while  a  sale  of  suspected  animals  is 
not  finally  completed  until  after  a  post-mortem  examination 
has  been  made.  Suspected  animals  are  set  apart  from  those 
which  are  passed,  and  are  separately  slaughtered. 

Any  carcass  or  parts  which  are  found  to  be  unsound  dur- 
ing the  post-mortem  examination  at  the  packing  and  slaught- 


FORM  21 

ering  plants  are  condemned  and  sent  to  the  "condenmed" 
rooms  to  be  denatured  or  tanked  so  as  to  make  them  useless 
for  food  purposes.  Those  suspected  of  disease  during  the 
post-mortem  inspection  are  marked  "U.  S.  retained"  and  re- 
moved to  separate  compartments  known  as  "retaining  rooms" 
for  final  inspection,  and  if  found  to  be  unsound  they  are  later 
sent  to  the  condemned  rooms.     (See  Form  No.  20.) 

Particular  care  is  taken  in  the  case  of  animals  or  meats 
exported  to  foreign  markets.  Many  of  the  export  cattle  are 
inspected  first  at  the  interior  markets  and  again  at  the  ports. 
They  are  tagged  for  identification  at  the  interior  yards  and 
records  are  kept  so  that  an  outbreak  of  disease  may  be  traced 
back  to  its  origin.     The  ocean  vessels  which  carry  them  are 


I 


!■ 


I  1 

I   7     i\ 


MEPART^ 


RICULTURE^I 


TED 


PASSED  ifl  i 

INDUSTRY^  I 


WARNING.  NOTICE  IS  HEREBY  GIVEN  THAT  THIS  STAMP  F5  ^ 
MUST  BE  DESTI^OYED  WHEN  THE  CONTENTS  OF  THE  y  Sg 
PACKAGE  UPON  WHICH  IT  IS  PUCED  HAVE  BEEN  REMOVED  Z  ^ 


CENTRAL  LIVESTOCK  MARKETS 


195 


also  inspected  as  to  sanitation,  fittings,  feed,  water,  atten- 
dants, etc.,  so  that  the  animals  may  arrive  in  good  condition, 
and  with  the  exception  of  some  destinations  which  have  been 
exempted,  the  vessels  may  not  clear  until  the  Department  of 
'Agriculture  has  issued  a  certificate  of  inspection  such  as  is 
reproduced  in  Form  No.  21.  Export  meat  is  likewise  subjected 
to  special  inspection.  The  packages  have  attached  to  them 
'^export  stamps"  such  as  are  shown  in  Form  22,  and  may  not 


Form  22 — Continued 

be  shipped  to  Great  Britain,  Europe,  Argentina  or  Mexico 
without  obtaining  from  a  government  inspector  an  "export 
certificate"  showing  the  names  of  the  exporter  and  consignee, 
destination,  numbers  of  stamps,  shipping  marks,  kind  of  prod- 
uct and  weight.     (See  Forms  23,  24  and  25.) 

As  federal  inspection  applies  only  to  interstate  and  for- 
eign shipments,  some  of  the  states  also  regulate  the  construc- 
tion, equipment  and  Sanitation  of  packing  and  slaughtering 
establishments,  and  make  provision  for  inspection  by  state 
inspectors.    Some  municipalities  further  supplement  federal 


Form  23 


Form  24 


:^•=^1^„  T^J^v. 


A       A  a .  ■ 


FoBM  25 
196 


i« 


CENTRAL  LIVESTOCK  MARKETS 


197 


inspection  by  prohibiting  the  local  sale  of  unsound  meat  and 
providing  for  municipal  inspection. 


Livestock  Prices 

There  is  no  general  wholesale  price  in  the  cattle,  hog  or 
sheep  trades  as  there  is  in  the  grain  and  cotton  trades.  In 
the  cattle  markets,  for  example,  although  the  prices  of  native, 
western  and  Texan  steers  constitute  general  guides,  the  actual 
prices  paid  for  particular  lots  vary  widely  according  to  qual- 
ity, character,  conditions  of  production  and  other  considera- 
tions. There  is  no  basis  grade  of  cattle  as  there  is  of  cotton 
or  wheat.  There  is  likewise  no  individual  market  or  small 
group  of  markets  which  determine  cattle  prices  throughout 
the  country.  Chicago  prices  show  the  general  movement  of 
cattle  prices  but  cannot  be  taken  as  a  standard,  because  they 
are  usually  higher  than  in  markets  located  further  west  and 
their  fluctuations  are  influenced  by  a  relatively  large  propor- 
tion of  corn-fed  cattle.  There  is,  moreover,  no  great  specula- 
tive livestock  market  where  present  and  future  conditions  of 
supply  and  demand  are  so  systematically  discounted  as  in  the 
grain  and  cotton  trades.  There  is  of  course  a  general  relation 
between  the  prices  paid  at  the  various  central  livestock  mar- 
kets, for  spot  exchanges  have  been  organized,  telegraphic  con- 
nections have  been  established,  the  prices  of  the  leading  vari- 
eties and  classes  of  livestock  are  published  in  the  daily  press 
and  in  livestock  trade  journals,  and  the  principal  buyers  at 
most  of  the  western  markets  are  the  large  packing  companies. 

Since  most  of  the  stock  throughout  the  West  is  shipped 
direct  to  central  markets  by  the  growers,  country  and  central 
market  prices  are  in  many  cases  synonymous.  The  prices  paid 
by  local  dealers  to  farmers  who  do  not  sell  at  the  central  mar- 
kets bear  a  general  relation  to  the  prices  paid  in  those  mar- 
kets, for  there  frequently  is  competition  between  different 
local  dealers  and  between  dealers  and  retail  butchers.  Central 
market  prices,  moreover,  are  published  in  newspapers  and 
farm  journals  where  they  can  be  readily  seen  by  farmers.    In 


198 


AGKICULTUEAL  COMMERCE 


Ir 


many  instances,  however,  the  country  prices  are  the  product 
of  individual  bargaining,  the  dealers  endeavoring  to  buy  as 
far  as  possible  under  the  prevailing  central  market  prices. 

The  factors  influencing  the  prices  paid  at  the  central  mar- 
kets are  various.  As  in  the  case  of  grain  and  cotton  they  are 
primarily  affected  by  considerations  of  supply  and  demand. 
To  some  extent  there  is  a  seasonal  variation  in  the  supply  of 
livestock  which  affects  prices,  but  the  most  pronounced  varia- 
tion is  the  periodical  increase  or  decrease  of  the  country's 
total  supply  of  meat  animals.  Though  other  considerations 
were  instrumental,  there  can  be  no  doubt  that  the  increase  in 
livestock  prices  since  1906  and  1907  was  largely  due  to  a 
shortage  in  the  total  supply  of  available  beef  cattle,  sheep  and 
hogs,  the  first  two  declining  in  absolute  numbers,  and  the  last 
increasing  less  rapidly  than  the  market  demand. 

The  market  demand  for  livestock  is  affected  not  only  by 
the  growth  of  population  and  demand  for  meat  in  the  United 
States,  but  by  the  demand  for  American  livestock  and  espe- 
cially for  American  meat  products  in  foreign  markets,  by  for- 
eign tariffs  and  import  regulations,  and  by  the  amount  of 
competition  or  cooperation  between  livestock  buyers. 

Livestock  prices  are  also  influenced  by  considerations  of 
quality.^  Differences  in  quality  largely  explain  the  difference 
between  the  prices  of  native  and  Texan  cattle,  range  cattle  and 
corn-fed  cattle,  steers  and  cows,  cattle  and  calves,  sheep  and 
lambs.  Quality  for  meat  purposes  depends  to  some  extent 
upon  the  nature  of  breed.  The  Texan  "long-horns"  which 
were  so  numerous  in  the  past  compare  unfavorably  with  the 
fancy  beef  cattle  which  are  displacing  them.  Southern  "razor- 
backs"  compare  unfavorably  with  the  improved  breeds  of  hogs 
in  the  corn  belt,  and  ordinary  wool-growing  sheep  with  sheep 
bred  both  for  mutton  and  wool. 

Weight  is  also  a  consideration  affecting  quality.  Price 
records  indicate  that  for  stock  of  a  given  sex  and  age,  "the 
higher  average  weight  carries  with  it  in  each  case  a  higher 
average  price."  ^     Sex  and  age  are  factors  of  quality,  and  so 

^See  Bureau  of  Corporations:    The  Beef  Industry,  pp.  106-118. 
*  Ibid.,  p.  111. 


CENTRAL  LIVESTOCK  MARKETS 


199 


I 


are  the  dressing  percentage  or  amount  of  beef,  pork  or  mutton 
per  one  hundred  pounds  of  live  weight,  the  kind  of  food  used, 
and  the  value  or  probable  value  of  by-products  such  as  the 
hides,  butter  fat  and  lard. 

While  the  cost  of  production  does  not  determine  livestock 
prices  it  too  exerts  an  influence.  Prices  have  at  times  been 
below  cost,  but  unless  they  are  sufficiently  high  to  yield  a 
profit  to  ranchers,  rangers,  farmers  or  stock  feeders  a  reaction 
upon  the  number  of  animals  raised  gradually  follows.  The 
principal  cost  items*  are  land  and  other  capital  costs,  range 
rentals,  labor,  food  or  forage,  losses  from  diseases  or  other 
causes,  taxes,  fuel  for  sheep  and  cattle  camps,  and  in  some 
cases  the  cost  of  obtaining  a  water  supply  and  of  dipping 
diseased  stock.  In  the  case  of  farmers  or  feeders  who  pur- 
chase range  stock  and  young  animals  to  prepare  them  for 
market  the  chief  items  are  the  cost  of  the  feeders  and  stockers 
and  the  cost  of  corn  or  other  feed.  Whether  the  farmers  are 
corn  growers  or  purchase  it  from  others,  the  price  of  corn 
affects  the  price  of  livestock,  for  if  the  price  of  fed  animals 
is  relatively  too  low  it  becomes  unprofitable  to  feed  them  with 
corn.  In  the  case  of  sheep  the  cost  of  production  is  charged 
partly  to  their  mutton  and  partly  to  their  wool  value.^  The 
increase  in  many  of  these  cost  items  in  recent  years  is  re- 
flected in  the  increased  prices  of  livestock. 

Similar  to  cost  of  production  are  transportation  and  mar' 
heting  costs  which  have  been  discussed  in  another  connection. 
Marketing  costs  are  so  small  that  they  exert  little  influence 
upon  prices,  but  transportation  costs  are  partly  responsible 
for  the  price  differences  existing  between  the  markets  of  the 
Far  West,  those  of  the  Ohio  Valley  and  those  on  the  Atlantic 
seaboard.  Differences  in  transportation  costs  and  quality  are 
mainly  responsible  for  the  higher  level  of  cattle  prices  paid 
at  Chicago  than  at  the  central  markets  of  the  trans-Missis- 
sippi Valley. 

General  price  factors  not  peculiar  to  livestock  are  discussed 

in  Chapter  XVII. 

*For  statistics  see  Tariff  Board:    Wool   and  Manufactures  of 
Wool,  vol.  i,  pp.  315-377. 


ii 


-IJ 

H 


200  AGEICULTURAL  COMMERCE 


BIBLIOGRAPHY 

♦Andrews,  Frank.  "Cost  and  Methods  of  Transporting  Meat 
Animals,"  Department  of  Agriculture  Year  Book  for 
1908  (1909),  pp.  227-244. 

*Armour,  J.  Ogden.  The  Packers,  the  Private  Cars  and  the 
People  (1906). 

*DoANE,  D.  H.  "The  Cooperative  Lamb  Club  as  an  Agency 
for  Lower  Marketing  Costs,"  The  Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science,  Nov., 
1913,  pp.  216-222. 

*Warner,  K.  E.  Paper  entitled  "Marketing  Livestock  in  Min- 
nesota" (Feb.,  1915). 

*Weld,  L.  p.  H.  "Statistics  of  Cooperation  Among  Farmers 
in  Minnesota,"  Minnesota  Experiment  Station  Bulletin 
No.  146,  pp.  17-18. 

* Studies  in  Marketing  of  Farm  Products  (Feb..  1915) 

pp.  15-37.  ^' 

♦Interstate  Commerce  Commission:  11  I.  C.  C.  Reports  277- 
22  L  C.  C.  Reports  160;  23  I.  C.  C.  Reports  7. 

♦United  States  Bureau  of  Animal  Industry:  Annual  Report 
(annual). 

♦United  States  Bureau  of  Corporations:  The  Beef  Industrv 
(1905).  ^ 

♦United  States  Bureau  of  Crop  Estimates:  'TLivestock  on 
Farms,  Jan.  1,  1915,"  The  Agricultural  Outlook  (Feb. 
6,  1915),  Farmers'  Bulletin  No.  651  (1915). 

United  States  Bureau  of  Foreign  and  Domestic  Commerce: 
Annual  Commerce  and  Navigation  Report  (annual). 

United  States  Bureau  of  Statistics   (Department  of  Agricul- 
ture) :      "Argentine    Beef,"    The   Agricultural   Outlook 
(Mar.  18,  1914),  Farmers'  Bulletin  No.  581  (1914)    dd 
30-40.  ^' 

Livestock  of  the  United  States,  The  Agricultural  Out- 
look (Feb.  7,  1914),  Farmers'  Bulletin  No.  575  (1914). 

Meat  Animals   and  Packing  House  Products  Imported 

into  Eleven  Principal  Countries,  1895-1904,  Bulletin  No 
40  (1906). 

Meat  in  Foreign  Markets,  Tariffs  of  Fourteen  Importing 

Nations    and    Countries   of   Surplus,    Bulletin   No.    39 
(1905). 

Meat  Supply  and  Surplus,  Bulletin  No.  55  (1907). 

* Monthly  Variation  in  Numbers  of  Farm  Animals,  Ag- 


CENTRAL  LIVESTOCK  MARKETS 


201 


ricultural   Outlook    (Apr.   23,  1914),  Farmers'   Bulletin 
No.  590  (1914),  pp.  8-10. 
United  States  Bureau  of  Statistics  (Department  of  Commerce 
and  Labor),  Monthly   Summary  of  Commerce  and  Fi- 
nance, December  issues  (1905-1911). 

* Marketing  Grain   and  Livestock  in  the  Pacific   Coast 

Region,  Bulletin  No.  89  (1911). 
♦United   States    Census   Office,   Thirteenth   Census:   Manufac- 
tures, 1910  (1913),  Vol.  10,  pp.  343-345. 

* Agriculture,  1910  (1913),  Vol.  5,  pp.  327-529. 

♦United  States  Department  of  Agriculture:     Year  Book  (for 

annual  livestock  statistics). 
♦United  States  Industrial  Commission :    Distribution  and  Mar- 
keting of  Farm  Products,  Vol.  6,  Part  5  (1901). 
♦United   States    Tariff    Board:     Wool   and    Manufactures   of 
Wool,  Vol.  I  (1912). 
See  also  the  annual  reports  of  the  following  stockyards  and 
exchanges  for  livestock  statistics :    Chicago  Union  Stock  Yards 
Co.,  Omaha  Union  Stock  Yards  Co.,  St.  Joseph  Stock  Yards 
Co.,  St.  Paul  Stock  Yards  Co.,  Sioux  City  Stock  Yards  Co., 
Denver  Union  Stock  Yards  Co.,  Indianapolis  Stock  Yards  Co., 
Wichita  Union   Stock  Yards   Co.,   St.  Louis  Merchants'  Ex- 
change,   Cincinnati    Chamber    of    Commerce,    and    Cleveland 

Chamber  of  Commerce. 

*  Keferences  designated  by  an  *    apply  also  to  chap.  viii. 


t  ■ 

t 

': 

.1  M 

'  1 . 


I    \\ 


I 


-I 


i 


CHAPTER    X 


THE   WOOL   MAEKET 


The  wool  trade  of  the  United  States  differs  from  the  ag- 
ricultural trades  considered  thus  far  in  the  great  distance 
which  separates  the  central  markets  from  the  principal  sources 
of  the  domestic  supply.  The  ranges  of  the  Rocky  Mountains 
are  from  two  to  three  thousand  miles  distant  from  the  Boston 
wool  market,  the  largest  in  the  country.  The  wool  trade  is 
also  affected  to  a  much  greater  extent  by  production  in  foreign 
countries,  from  30  to  over  40  per  cent,  of  the  annual  mill 
consumption  being  imported  from  abroad,  although  the 
American  output  of  wool  was  for  many  years  partially  pro- 
tected by  high  import  duties  which  were  not  removed  until 
December  1,  1913.  The  methods  of  buying,  selling,  concen- 
trating and  distributing  wool,  moreover,  contain  distinguish- 
ing trade  features. 

Supply  and  Distribution  of  Wool 

Wool  Production  in  the  United  States.— The  status  and 
distribution  of  the  sheep-growing  industry  of  the  United 
States  as  discussed  in  the  preceding  chapter,  indicates  in  gen- 
eral the  sections  of  the  country  which  are  important  in  the 
production  of  wool.  The  wool  trade,  however,  is  more  par- 
ticularly concerned  with  that  portion  of  the  industry  which 
produces  wool  as  distinct  from  mutton  and  lamb.  The  Census 
Office,  for  example,  reported  the  total  number  of  sheep  in  the 
United  States  as  of  April  15,  1910,  to  be  52,839,000,  but 
when  lambs  are  excluded  from  this  number  it  is  decreased  to 
39,644,000.  The  National  Association  of  Wool  Manufactur- 
ers likewise  placed  the  number  of  sheep  of  shearing  age  on 

202 


THE  WOOL  MARKET 


203 


April  1,  1910,  at  41,999,500,  and  on  April  1,  1913,  at 
36,319,000. 

Wool  production,  even  more  than  sheep  production,  is 
confined  largely  to  the  three  far-western  districts — the  north- 
western and  southwestern  mountain  ranges  and  the  Pacific 
Slope.  (See  Map  No.  VIII.)  Not  only  has  the  total  num- 
ber of  sheep  raised  in  the  leading  central  Mississippi  and  Ohio 
Valley  states  declined  greatly  since  the  seventies  and  eighties, 
but  many  of  the  sheep  growers  in  these  states  have  under- 
taken the  production  of  mutton  and  lamb  in  preference  to 
wool.  Although  they  produce  some  of  the  finest  wool  grown 
in  the  United  States,  their  merino  and  other  fine  wool  flocks 
have  been  displaced  or  crossbred  with  English  mutton  breeds.^ 
Wool  is  graded  largely  on  the  basis  of  the  percentage  of 
merino  blood  in  the  sheep,  and  on  this  basis  it  is  estimated 
that  at  present  but  23  per  cent,  of  the  wool  grown  east  of  the 
Mississippi  and  in  Minnesota,  Iowa  and  Missouri  grades 
above  "half-blood,"  while  8  per  cent,  grades  as  "half-blood," 
and  69  per  cent,  as  f  blood  and  below.^ 

The  great  decline  in  the  number  of  sheep  raised  in  the 
Ohio  and  central  Mississippi  valleys  since  the  seventies  and 
eighties  was  more  than  counterbalanced  by  the  growth  of  the 
sheep  industry  in  the  mountain  states,  particularly  in  Wy- 
oming, Montana,  and  Idaho.  The  number  in  Texas,  Califor- 
nia, and  Mexico  has  declined  since  1890,  but  here  as  also  in 
Oregon,  Utah,  and  Colorado  the  sheep  industry  has  remained 
an  important  one.  A  much  larger  proportion  of  the  sheep  of 
these  mountain  and  far-western  ranges,  moreover,  consists  of 
fine  wool  types,  for  although  the  growers  of  northwestern 
mountain  states  breed  for  mutton  as  well  as  wool,  merino 
and  rambouillet  sheep  still  predominate.  It  is  estimated  that 
66  per  cent,  of  the  total  wool  produced  in  the  mountain  and 
Pacific   states  grades  above,   and   22   per  cent,   as  ^-blood 


*  In  the  central  Mississippi  and  Ohio  valleys  the  leading  breeds 
are  the  Shropshire,  Oxford  and  Hampshire.  In  Kentucky  and  Ten- 
nessee there  are  many  Southdawns. 

'  United  States  Board :  Wool  and  Manufactures  of  Wool,  vol.  i, 
p.  300. 


'to 


204 


AGRICULTURAL  COMMERCE 


wool,  and  but  12  per  cent,  as  f  blood  or  below.  In  1913  these 
range  states,  which  are  more  fully  described  in  Map  No.  IX, 
produced  65  per  cent,  of  the  country's  wool  clip.* 

Owing  to  the  shift  from  wool  breeds  to  mutton  breeds  in 
many  parts  of  the  United  States,  the  output  of  wool  did  not 
keep  pace  with  the  number  of  sheep  on  American  farms  and 
ranges.  The  maximum  wool  clip  was  produced  in  1893,  when 
348,500,000  pounds  were  sheared  as  compared  with  296,- 
200,000  in  1913.  In  1902-1903,  when  the  Department  of 
Agriculture  reported  the  maximum  number  of  sheep,  the 
annual  wool  output  aggregated  316,341,000  pounds,  and  since 
then  it  has  usually  averaged  about  300,000,000  pounds.  The 
decline  in  the  last  few  years  is  due  chiefly  to  the  unusually 
large  number  of  sheep  and  lambs  sold  to  packers  and  slaugh- 
terers. 

Imports  of  Foreign  WooL— The  wool  trade  differs  from 
the  grain,  cotton  and  livestock  trades  in  that  it  is  obliged  to 
compete  for  the  domestic  market  against  foreign  producers. 
In  contrast  with  the  commodities  previously  considered,  prac- 
tically no  domestic  wool  is  exported  from  the  United  States. 
Indeed  the  country's  wool  manufacturing  industries  find  it 
necessary  annually  to  import  from  30  to  over  40  per  cent,  of 
their  raw  wool  supply.  The  total  production  of  American 
wool,  the  imports,  and  the  consumption  of  wool  in  recent 
years  are  shown  in  table  No.  IX  (page  206). 

Large  quantities  of  foreign  wool  are  purchased  in  Great 
Britain  and  some  in  Belgium,  France  and  Germany,  for  these 
countries  act  as  brokers  in  the  wool  trade,  but  most  of  the 
wool  imported  from  abroad  originates  in  Australia,  Argen- 
tina, New  Zealand,  China,  Russia  and  South  Africa.  Of 
195,293,000  pounds  imported  in  the  fiscal  year  1913,  111,- 
168,000  consisted  of  low-grade  wools,  originating  chiefly  in 
China,  Russia,  East  India,  other  Asiatic  countries,  the  Scotch 
highlands  and  parts  of  South  America  where  native  sheep  are 
raised.    They  were  until  the  revision  of  the  tariff  in  October, 

*  National  Association  of  Wool  Manufacturers:  Annual  Wool 
Eeview  (1913),  p.  6,  not  including  pulled  wool,  the  origin  of  which  is 
not  stated. 


U 


Map  IX. — Location  op  Range  CouNTRT^ 


«  From  U.  S.  Department  of  Agriculture,  Year  Book,  1908,  p.  233  (Frank  Andrews; 
Cost  and  Methods  of  Transporting  Meat  Animals). 


I  !• 


205 


206 


AGEICULTUKAL  COMMEKCE 


THE  WOOL  MARKET 


207 


1913,  known  as  Class  III  wools  and  were  largely  used  in  the 
carpet  industry.  Twenty-nine  million,  nine  hundred  and 
thirty-seven  thousand  pounds  consisted  of  high-grade  wools 
used  largely  in  the  worsted  and  corded  woolen  industries. 
They  were  known  as  Class  I  or  "clothing"  wools,  and  origi- 
nated chiefly  in  the  merino  and  merino  crossbred  flocks  of 
Australia,  Argentina,  New  Zealand,  Uruguay  and  South 
Africa.     The  remainder  or  16,886,000  pounds  consisted  of 

TABLE  IX 

Domestic  Output,  Imports  and  Consumption  of  Wool* 

(000  omitted) 


Years 

Domestic 
Output  t 

Imports  t 

Consiirup- 
tionj 

Per  Cent,  of 

Consumption 

Foreign 

1881-1890  (av.).. 
1900 

280,700 
288,637 
321,363 
318,547 
304,043 
296,175 

93,195 
155,928 
263,928 
137,648 
193,401 
195,293 

369,486 
436,663 
581,236 
447,990 
495,724 
486,266 

24.1 
34  4 

1910 

44  7 

1911 

28  9 

1912 

38  8 

1913 

39.3 

*  National  Association  of  Wool  Manufacturers,  Annual  Wool  Review;  Depart- 
ment of  Commerce:  Annual  Commerce  and  Navigation  Reports,  and  Statistical 
Abstract. 

t  Years  ending  April  first. 

t  Years  ending  June  thirtieth. 

wool  of  the  grade  produced  by  the  various  types  of  English 
sheep  or  crossbreeds  other  than  merino  crosses,  and  of  hair 
of  the  Angora  goat  (mohair).  Alpaca,  camel  and  other  ani- 
mals. These  imports  of  the  so-called  Class  II,  or  "combing^* 
wools,  originated  chiefly  in  Great  Britain,  Canada  and  Ar- 
gentina, and  the  imports  of  hair  chiefly  in  Turkey,  South 
Africa,  China  and  South  America.* 

The  great  wool-growing  countries  of  the  world  are  Aus- 
tralia and  Argentine  Republic,  the  annual  output  of  the  for- 
mer aggregating  700,000,000  and  that  of  the  latter 
400,000,000    pounds.      New    Zealand,    Uruguay   and    South 

*  Russian  camel's  hair  was  included  in  No.  Ill  wools. 


Africa  produce  less  than  the  United  States  but  their  output 
is  mainly  a  surplus  available  for  exportation. 

Competition  Between  Domestic  and  Foreign.  WooL 
— The  extent  of  competition  between  domestic  and  imported 
wool  is-  not  so  great  as  their  relative  volume  would  indicate. 
The  largest  group  of  imports,  or  so-called  carpet  wools,  com- 
petes with  but  small  quantities  of  domestic  wool.  But  31  per 
cent,  of  the  total  American  clip  grades  as  |  blood  or  less,  and 
much  of  this  is  of  a  quality  which  does  not  bring  it  into  direct 
competition  with  the  low-grade  carpet  wools  imported  from 
China,  Russia  and  India.  Nearly  60  per  cent,  of  the  coun- 
try's wool  output  grades  half-blood  or  higher,*  and  is  used  in 
the  mills  which  also  purchase  imported  combing  and  clothing 
wool.  As  relatively  little  domestic  wool,  however,  competes 
with  the  highest  grades  of  Australian  wool,  a  portion  of  the 
"clothing*"  wool  imported  from  that  country  may  likewise  be 
regarded  as  non-competitive. 

Until  December  1,  1913,  moreover,  when  the  wool  was 
placed  upon  the  free  list  by  the  tariff  act  of  October,  1913, 
the  competition  between  domestic  and  foreign  wool  was  modi- 
fied by  protective  import  duties.  The  import  rates  imposed 
on  unscoured  ''carpef'  wools  by  the  acts  of  1897  and  1909 
ranged  from  4  to  7  cents  a  pound  according  to  whether  their 
value  was  less  or  more  than  12  cents  a  pound.^  They  were 
low  because  such  wools  are  in  the  main  not  competitive.  The 
rates  on  unscoured  "clothing''  wools,  however,  ranged  from 
11  to  22  cents  per  pound  according  to  whether  they  were 
washed  or  unwashed,  and  those  on  unscoured  "combing" 
wools  were  12  cents.  The  rates  on  scoured  "clothing"  wools 
were  33  cents,  "combing"  wools  36  cents,^  and  "carpet"  wools 
21  cents  per  pound. 


*  U.  S.  Tariff  Board :  Wool  and  Manufactures  of  Wool,  volJ  i,  p. 
300—52  per  cent,  above  half-blood  and  17  per  cent,  half-blood. 

'  Duties  here  quoted  were  those  on  wool  not  on  the  skin. 

»  The  rates  on  unscoured  wool  in  other  tariff  acts  since  1860  were 
as  follows:  1861  and  1862—50  per  cent,  3c.  and  9c.;  1864— 3c  to 
12c.  plus  10  per  cent.;  1867— 3c.  to  12c.  plus  10  per  cent.,  and  washed 
Class  I  wools  double;  1872—2  7/lOc.  to  10  8/lOc.  plus  9  per  cent, 
and  washed  Class  I  wools  double;  1875— 3c.  to  12c.  plus  10  per  cent. 


(  ;1 


:^i 


11 


.  M 


208 


AGRICULTURAL  COMMERCE 


i] 


The  ability  to  import  foreign  '^clothing"  and  "combing" 
wools  while  these  protective  duties  were  in  effect  was  due 
largely  to  the  absolute  shortage  of  domestic  wools,  and  to  dif- 
ferences in  grade,  use  and  shrinkage.     The  finest  grades  of 
Australian  wool  are  not  in  direct  competition  with  American 
wool,  being  used  in  the  manufacture  of  the  finest  fabrics  or 
to  mix  with  domestic  wool  of  somewhat  lower  grade  or  d  li- 
ferent quality.     Much  foreign  wool,  however,  is  competitive, 
and  was  able  to  pay  the  high  protective  duties  largely  because 
the  shrinkage  of  imported  "clothing"  and  "combing''  wools, 
1.  e.,  the  difference  in  weight  between  "raw"'  or  "grease"  wool 
and  "clean"  or  "scoured"  wool,  is  less  than  that  of  domestic 
wools.    As  compared  with  a  shrinkage  of  60  per  cent,  and  67.3 
per  cent,  in  the  finer  grades  of  wool  produced  respectively  in 
the  eastern  and  western  parts  of  the  United  States,  the  Tariff 
Board  reported  an  average  shrinkage  of  47.6  per  cent,  and 
48.2  per  cent,  respectively  in  the  finer  grades  of  South  Ameri- 
can and  Australian  imported  wools.     The  difference  in  the 
case  of  coarser  South  American  and  Australian  wools  is  less 
pronounced  but  is  also  a  substantial  factor  in  the  wool  trade. 
Since  the  tariff  rates  were  constructed  on  the  theory  that  wool 
shnnks  66f  per  cent,  in  the  scouring  it  was  to  the  interest 
of  wool  importers  and  foreign  exporters  to  select  wool  of  low 
shrinkage  for  the  American  market  and  to  ship  the  heavier 
wools  to  Europe.^     Natural  differences  in  shrinkage,  more- 
over, were  made  larger  by  the  practice  of  "skirting."    While 
American  wool  usually  reaches  the  market  substantially  as  it 
comes  from  the  sheep's  back,  in  the  case  of  foreign  wools  of 
like  character  imported  under  the  protective  tariff  acts  of 
1883,  1890,  1897  and  1909,  the  stained  or  inferior  locks  were 
usually  skirted  or  trimmed  from  the  edges  of  the  fleeces. 

Reasons  for  Extensive  Imports  of  Wool.— The  reasons 
why,  in  spite  of  high  tariff  rates,  the  mills  of  the  United 
States  have  had  to  import  from  30  to  over  40  per  cent,  of 

and  washed  Class  I  wools  double;    1883-2|c.   to   12c.   and   washed 
Cass  I  wools  double;    1890-Class  I-unwashed   lie.,   washed   22c., 
Class  II,  12c.,  Class  III  32  per  cent,  to  50  per  cent.:  1894— /ree 
'  U.  S.  Tariff  Board,  vol.  i,  pp.  382-387. 


THE  WOOL  MARKET 


209 


their  raw  wool  supply,  or  stated  in  another  way,  the  reasons 
why  with  such  protection  the  American  raw  wool  industry 
has  not  met  the  needs  of  the  country's  mills,  lie  deeper  than 
differences  in  shrinkage  or  other  immediate  trade  considera- 
tions. Now  that  imported  wool  has  been  placed  on  the  free 
list  the  weight  of  these  causes  is  even  greater  than  formerly, 
because  foreign  wool  is  no  longer  hampered  by  raw  wool  duties 
ranging  from  4  to  22  cents  per  pound. 

1.  A  fundamental  cause  has  been  the  use  of  sheep  lands 
in  many  parts  of  the  United  States  for  crops  which  are  in- 
herently more  profitable.  The  movement  of  the  wool-growing 
industry  across  the  entire  continent  shows  how  as  the  frontier 
was  pushed  westward  wool  had  to  make  way  for  more  prof- 
itable crops.  Everywhere  east  of  the  Rocky  Mountains  the 
lands  which  formerly  produced  much  wool  are  now  used 
mainly  for  wheat,  corn,  oats,  hay,  vegetables,  fruits  or  other 

•  similar  crops.  It  found  its  last  main  stronghold  on  the  west- 
ern foothills  and  mountains,  for  there  the  development  of 
agriculture  has  been  less  rapid  and  much  land  is  unsuited  to 
crops  without  irrigation. 

2.  Similar  to  the  foregoing  cause  is  the  fact  that  in  many 
of  the  sheep-growing  regions  of  the  United  States,  it  has  been 
found  more  profitable  to  produce  mutton  and  lamb  than  to 
produce  wool.  As  formerly  mentioned  the  flocks  of  the  Ohio 
and  central  Mississippi  valleys  have  been  largely  converted 
into  meat-producing  flocks,  and  even  in  Wyoming  and  Mon- 
tana there  has  been  much  crossing  with  English  mutton 
breeds.  The  Tariff  Board  reported  that  receipts  from  wool 
in  the  western  flocks  taken  as  a  whole  averaged  $1.17  or  45.7 
per  cent,  of  the  total  receipts  per  head,  as  compared  with 
$1.31  or  58.7  per  cent,  in  Australia  and  $1.28  or  60.4  per 
cent,  in  South  America.^ 

3.  The  operating  costs  of  production  have  gradually  risen 
in  the  United  States  and  are  substantially  higher  than  in  the 
countries  which  produce  wool  of  similar  quality.  The  labor 
costs  in  the  western  states  where  sheep-raising  conditions  are 
the  most  favorable  average  about  82  cents  per  head  as  com- 

*Wool  and  Manufactures  of  Wool,  vol.  i,  p.  342. 


i? 


■  i 
If 


m 


m 


I    M 


:i! 


210 


AGRICULTUKAL  COMMERCE 


pared  with   7  cents  in  Australia  and  23   cents   in   South 
America.^    Forage  costs  average  about  45,  8,  and  35  cents  per 
head  respectively.    As  was  stated  by  the  Interstate  Commerce 
Commission:     ^The  free  range  was  the  basis  of  the  sheep 
industry  m  this  region,  and  the  free  range  no  longer  exists. 
J  he  better  lands  are  being  taken  up  by  farmers.     Much  is 
coming  under  cultivation  through  irrigation  projects.     The 
sheep-man  to-day  must  not  only  pay  for  the  privilege  of 
grazing,  but  he  is  deprived  of  his  winter  feeding  grounds  and 
must  supply  artificial  food  at  great  expense.    In  many  places 
the  water  formerly  available  has  become  private  property, 
and   this  necessitates   great   outlay   upon   the   part   of   the 
ranchman.    The  serious  condition  which  confronts  the  grow- 
er of  sheep  in  this  western  country  is  the  diminishing  quan- 
tity and  the  continually  increasing  price  of  land  in  its  va^ 
nous  forms;  and  this  is  not  a  temporary  but  a  permanent 
condition.^^  ^ 

Miscellaneous  costs,  including  administration,  mainte- 
nance repairs  and  depreciation,  taxation,  shearing,  wool  bags 
movement  of  flocks  between  winter  and  summer  ranges  etc ' 
average  about  83  cents  per  head  in  the  western  state's,  78 
cents  m  Australia  and  57  cents  in  South  America.  Total 
operating  costs  per  head  average  about  $2.11,  .93  and  $1.15 
respectively  in  the  three  competing  districts. 

The  total  net  charge  against  a  pound  of  merino  wool  in 
the  western  states  is  estimated  by  the  Tariff  Board  to  be  about 
11  cents,  m  the  remainder  of  the  United  States  about  19 
cents,  and  in  the  country  as  a  whole  12  cents.  These  cost  fig- 
ures which  were  based  upon  the  year  1909-1910  indicate  that 
the  average  price  of  24  cents  for  merino  wool  paid  to  growers 
m  the  Ohio  Valley  and  15.9  cents  paid  to  western  growers 
during  that  year  left  an  average  profit  of  but  3.1  cents  per 
pound  to  the  former  and  4.9  or  5  cents  to  the  latter.  In  later 
years  prices  have  been  higher,  but  as  stated  by  the  Tariff 
Board  "there  is  no  contingency  in  sight  that  can  by  any  pos- 

'  Cost  figures  as  reported  by  Tariff  Board,  Wool  and  Manufac- 
tures of  Wool,  vol.  i,  pp.  333-377. 
'  23  d.  C.  C.  Eeports,  156. 


THE  WOOL  MARKET 


211 


sibility  place  domestic  growers  on  an  equality  in  the  matter 
of  costs  with  their  competitors  in  South  America,  Australia 
and  the  Cape  Colonies." 

Distribution  by  Industries. — The  greatest  quantity  of 
wool  is  consumed  in  the  worsted  industry,  large  amounts  in 
the  carded  woolen  and  carpet  and  rug  industries,  and  smaller 
amounts  in  the  felt  goods,  hosiery  and  knit  goods  and  wool 
felt  hat  industries.  The  total  consumption  in  the  various  in- 
dustries in  1909  and  1899  are  shown  in  Table  No.  X. 

TABLE  X* 
Consumption  of  Raw  WooLf  in  the  United  States 


Industry 


Worsted 

Woolen 

Hosiery  and  knit  goods. 

Carpets  and  rugs 

Felt  goods 

Woolfelthats 


1909 
Quantity 


lbs. 

387,717,415 

87,037,951 

7,068,788 

64,135,020 

12,409,826 

1,203,498 


1899 
Quantity 


lbs. 

179,977,936 

150,200,616 

17,953,907 

51,871,334 

9,606,263 

2,713,374 


Per  Cent, 
of  Increase  t 


115.42 

—42.05 

—60.63 

23.64 

29.18 

—55.65 


*  Thirteenth  United  States  Census,  Vol.  X  (1910),  pp.  77,  106,  125. 
t  In  the  condition  purchased  in  the  United  States. 
X  Minus  (  —  )  sign  indicates  decrease. 

.In  the  census  year  1909  all  of  the  various  branches  of 
wool  manufactures  consumed  559,500,000  pounds  of  raw  wool. 
In  addition  much  wool  in  the  form  of  waste  and  noils  ^  passes 
from  the  worsted  to  the  carded  woolen  and  other  woolen  in- 
dustries ;  many  woolen  rags  and  much  shoddy  ^  is  annually 
consumed ;  and  there  is  some  trading  in  tops  ^  and  in  woolen 
and  worsted  yarns.  In  1909  wool  manufacturers  also  con- 
sumed over  39,000,000  pounds  of  animal  hair,  hair  yarn 
and  hair  noils,  and  384,500,000  pounds  of  cotton  and  cotton 
yarns. 

*  Short,  tangled  fibers  separated  from  wool  in  cOmbing  process. 

*  Wool  reclaimed  from  woolen  rags. 

*  Continuous  strands  or  ropes  of  combed  wool. 


:(     i 


•! 


hi 


212 


AGRICULTUEAL  COMMERCE 


The  worsted  mills,  which  are  the  chief  purchasers  of  wool, 
are  located  principally  in  Massachusetts,  Rhode  Island,  Penn- 
sylvania, New  Jersey,  New  York  and  Connecticut,  and  more 
particularly  in  Lawrence,  Providence  and  Philadelphia.  New 
York,  Pennsylvania  and  Massachusetts  produce  nearly  90  per 
cent,  of  all  the  domestic  carpets  and  rugs.  The  carded  woolen 
hosiery  and  knit  goods  and  felt  goods  mills  are  located  mainly 
in  the  eastern  half  of  the  United  States,  but  are  more  widely 
distributed.^ 

Central  Wool  Markets 

Although  some  wool  is  purchased  directly  from  the  grow- 
ers by  the  manufacturers  and  is  shipped  directly  to  the  mills, 
the  great  bulk  of  raw  wool  is  handled  by  central  wool  dealers 
or  commissionmen  who  concentrate  it  at  a  small  number  of 
large  central  markets.  There  are  two  chief  groups  of  central 
markets  east  of  the  Rocky  Mountains,  those  on  the  Atlantic 
seaboard  and  those  of  the  central  West. 

The  Eastern  Markets.— The  former,  which  are  of  pre- 
dominant importance  alike  in  the  domestic  and  import  trade, 
are  located  principally  in  Boston,  New  York  and  Philadel- 
phia.   Boston  is  the  controlling  wool  market  of  the  country; 
indeed  that  market  has  as  much  influence  over  wool  prices 
as   Chicago   has   over   the   prices   of   grain,   possibly   more. 
Equipped  with  huge  warehouses  and  scouring  plants,  located 
adjacent  to  the  greatest  woolen  textile  district  in  America, 
favored  by  a  location  which  enables  it  to  import  readily  from' 
abroad,  and  by  railroad  rates  which  until  recently  made  it 
difficult  for  most  of  the  central  western  markets  to  compete 
in  the  handling  of  wool  grown  on  the  mountain  ranges,  Bos- 
ton has*  been  able  to  quote  regularly  and  publish  daily  prices 
which  are  largely  followed  everywhere  throughout  the  United 

^Hosiery  and  knit  goods  chiefly  in  New  York,  Pennsylvania, 
Massachusetts,  Illinois,  Connecticut,  New  Hampshire,  and  Rhode 
Island.  Pelt  goods  chiefly  in  New  York,  Massachusetts,  New  Jersey, 
Connecticut  and  Pennsylvania.  Carded  woolen  goods  chiefly  in  Massa- 
chusetts, Pennsylvania,  Maine,  Connecticut,  New  Hampshire.  New 
York  and  Rhode  Island. 


THE  WOOL  MAKKET 


213 


States.  The  wool  receipts  of  Boston  in  1912  aggregated 
360,602,000  pounds,  or  74  per  cent,  of  the  entire  wool  con- 
sumption of  the  United  States. 

Central  Western  Markets.— There  are  few  central  wool 
markets  in  the  West  because  the  centers  of  consumption  are 
so  largely  located  in  the  East,  and  because  Boston,  New  York 
and  Philadelphia  have  as  compared  with  most  western  cities 
been  favored  by  relatively  low  through  railroad  rates.  St. 
Louis  and  Chicago  are  wool  centers  because  the  through  rates 
from  the  West  "break"  at  those  points ;  i.  e.,  the  through  rates 
to  the  seaboard  are  made  up  of  the  rates  from  the  local  ship- 
ping points  to  these  terminals  plus  the  rates  from  there  to 
the  seaboard,  thus  giving  St.  Louis  and  Chicago  wool  dealers 
an  opportunity  to  classify  and  grade,  scour  and  otherwise 
handle  western  wool.^  The  wool  receipts  of  Chicago  in  1912 
comprised  55,778,600  pounds,  and  those  of  St.  Louis  23,- 
390,000,  and  their  shipments  which  were  higher  because  of  the 
pulled  wool  obtained  from  the  packers  and  slaughterers  and 
the  storage  of  fleece  wool  were  respectively  98,691,600  and 
39,819,200  pounds.  Omaha  has  become  a  wool  center  because 
it  has  to  a  limited  extent  enjoyed  a  transit  privilege,  i.  e.,  the 
privilege  of  stopping  western  wool  and  subsequently  re- 
shipping  it  on  the  balance  of  the  through  rate.^  West- 
ern dealers  being  located  in  important  packing  and  slaughter- 
ing centers  are,  moreover,  able  to  increase  their  supply  by 
purchasing  "pulled"  wool  ^  and  their  middle-western  location 
enables  them  to  handle  some  of  the  wool  grown  in  the  Mis- 
sissippi Valley.  The  Interstate  Commerce  Commission  has 
recently  ruled  that  transit  privileges  should  be  extended  to 
other  "intermediate  points  on  a  direct  line  upon  payment  of 
24  cents  per  100  pounds  and  upon  the  condition  that  it  ap- 
plies only  to  wool  originating  west  of  the  Mississippi  Eiver, 
which  must  be  kept  senarate  from  wool  originating  at  points 
east  of  the  river.'*  * 

U9  L  C.  C.  Eeporta  535,  Dec.  14,  1910;  23  I.  C.  C.  Eeports  169, 
Mar.  21,  1912. 
'Ibid. 

■Wool  removed  from  skins  after  slaughter. 
*23  I.  C.  C.  Reports  177. 


^i 


214 


AGKICULTURAL  COMMERCE 


tl  ':   I 


Pacific  Coast  Markets.— Wool  grown  on  the  Pacific  Slope 
is  largely  concentrated  at  the  coast  terminals,  particularly  at 
San  Francisco  in  the  south  and  Portland  in  the  north.^    The 
coast  terminals  are  central  wool  markets  chiefly  because  by 
their  location  they  are  enabled  to  ship  to  the  eastern  markets 
either  by  water  or  rail.     For  some  years  they  have  enjoyed  a 
through  blanket  rate  of  $1.00  per  100  pounds  on  baled  wool 
shipped  eastward  by  rail,  as  compared  with  typical  rates  on 
shipments  from  interior  points  to  Boston,  ranging  as  follows : 
from  Spokane,  Washington,  $2.13 ;  The  Dalles,  Oregon,  $1.43 ; 
Boise,  Idaho,  $2.13;  Billings,  Montana,  $1.75;   Cheyenne', 
Wyoming    and    Denver,    Colorado,    $1.72^;    Ogden,    Utah, 
$1.72i;  Albuquerque,  New  Mexico,  $1.93;  and  Fort  Worth, 
Texas,  $1.84J.    The  rates  from  interior  points  to  the  eastern 
markets  have  recently  been  reduced  by  the  Interstate  Com- 
merce Commission,  but  they  are  still  in  excess  of  $1.00  per 
100  pounds.    The  rates  on  sacked  wool  shipped  from  Denver 
and  Cheyenne  to  Boston  for  example  have  been  reduced  from 
$1.72J  to  $1.32  per  100  pounds,  and  proportionate  reductions 
were  made  on  shipments  from  other  mountain  and  far-western 
interior  points.^ 

runctions  of  Central  Wool  Markets.— (1)  The  centra) 
markets  are  points  of  concentration  where  raw  wool  may  be 
stored,  classified  and  graded.  (2)  They  are  spot  or  cash  mar- 
kets in  which  the  dealers  and  commissionmen  sell  wool  to 
manufacturers  as  it  is  needed  by  them  either  for  immediate 
delivery  or  delivery  at  a  stated  time  in  the  future.  (3)  Al- 
though speculative  "futures''  are  not  dealt  in  as  in  the  grain 
and  cotton  trades,  there  is  speculation  in  wool  at  some  of  the 
central  markets.  (4)  They  are  shipping  and  distributing 
points  from  which  wool  is  distributed  to  the  mills  or  to  other 
wool  markets.  (5)  They  facilitate  the  quoting,  publication 
and  determination  of  wool  prices.  (6)  Most  of  them,  par- 
ticularly the  three  great  eastern  markets,  are  scouring  centers. 

"Also  Los  Angeles,  Sacramento,  Seattle,   Tacoma,   Everett,  As- 
toria, etc. 

=^23  I.  C.  C.  Reports  151,  Mar.  21,  1912;  25  I.  C.  C.  Reports  185. 
Nov.,  1912;  25  I.  C.  C.  Reports  675,  Jan.  7,  1913. 


THE  WOOL  MARKET 


215 


! 


f 


While  there  are  a  small  number  of  scouring  plants  in  the 
wool-growing  regions,  most  of  the  wool — domestic  as  well  as 
foreign — arrives  at  the  central  markets  as  raw  or  grease  wool, 
there  to  be  scoured^  either  by  the  central  wool  dealers  or 
manufacturers.  (7)  The  Atlantic  seaboard  markets  in  addi- 
tion are  wool-importing  centers;  and  (8)  in  all  the  large  mar- 
kets, but  particularly  in  Boston,  New  York  and  Philadelphia, 
much  wool  is  consumed  in  locally  established  mills. 


The  Local  Purchasing  of  Wool 

Purchase  from  American  Growers. — Wool  is  sold  by  the 
growers  either  in  the  "unwashed^'  condition  just  as  it  comes 
from  the  sheep's  back,  or  after  it  has  been  "washed."  In  the 
latter  case  the  sheep  are  driven  into  shallow  streams  or  vats 
and  the  wool  is  washed  with  water  so  as  to  remove  some»of 
the  foreign  substances  and  perspiration  adhering  to  it.  In 
either  case  the  "wool  fat"  or  "grease"  is  usually  not  removed 
until  the  wool  has  been  sold  and  reaches  the  scouring  plants 
of  the  central  dealers  or  manufacturers. 

It  is  usually  shipped  from  the  western  ranges  in  sacks 
about  7  feet  long,  3  feet  in  diameter  and  weighing  from  250 
to  350  pounds,  each  fleece  being  tied  up  with  a  string  and 
trodden  into  the  sack.  Some  wool  is  baled  before  it  is  shipped 
to  distant  points.  Three  bales  may  be  tied  together  and  com- 
pressed, or  the  wool  may  be  taken  from  the  sack's  and  com- 
pressed into  square  or  rectangular  bales  fastened  with  iron 
straps.  Baling  is  done  mainly  by  the  dealers  rather  than  the 
growers,  and  thus  far  the  practice  has  not  become  general  in 
the  United  States.  The  Interstate  Commerce  Commission, 
however,  has  recently  ordered  a  difference  of  15  per  cent,  in 
favor  of  wool  shipped  from  western  points  in  bales  having  a 
density  of  at  least  19  pounds  per  cubic  foot.^ 

Although  the  wool  trade  is  similar  to  the  grain,  cotton 

^Scouring  removes  the  wool  fat,  perspiration,  dirt  and  foreign 
substances  so  as  to  prepare  it  for  carding  and  combing. 
»23  I.  C.  C.  Reports  166,  176. 


216 


AGKICULTURAL  COMMERCE 


i 


and  livestock  trades  in  that  much  of  the  output  is  concen- 
trated at  central  markets,  it  differs  in  that  the  principal 
central  wool  markets  are  not  in  the  interior  but  on  the  sea- 
board, from  two  to  over  three  thousand  miles  distant  from 
the  western  ranges.  The  methods  of  purchasing  the  wool 
from  the  growers  are  various. 

(1)  The  most  common  method  throughout  the  mountain 
districts  is  the  direct  purchase  by  central  wool  dealers,  (a) 
The  growers  may  receive  bids  from  these  dealers  by  mail  or 
telegraph  and  in  that  way  make  a  private  sale,  (b)  They  may 
be  visited  by  agents  sent  out  by  the  dealers  to  make  bids  and 
buy  their  wool  privately,  (c)  They  may  sell  their  clip  to  the 
agents  of  the  dealers  at  public  sale  on  the  local  wool  ex- 
changes which  have  been  established  at  some  of  the  local  wool 
shipping  points.  These  local  exchanges  are  spot  markets  with 
warehouses  where  growers  may  bring  their  wool,  list  it  free 
of  charge,  and  receive  bids  on  it  at  given  times  from  the  vari- 
ous buyers  who  congregate  there.  At  some  points  the  buyers 
who  organize  the  local  exchanges  offer  free  warehousing  as 
an  inducement  to  the  growers.^ 

The  dealers  may  buy  the  wool  either  before  or  after  it  has 
been  shorn.  In  some  seasons  much  wool  is  contracted  for  on 
the  sheep^s  back,^  although  many  growers  are  opposed  to  this 
practice.^ 

(2)  Wool  is  also  consigned  by  growers  to  central  com- 
missionmen.  Some  wool-buying  houses  may  act  as  dealers 
and  also  receive  wool  on  consignment.  Commissionmen  sell 
the  wool  to  manufacturers  or  dealers,  the  growers  paying  a 
commission  for  their  services,  the  railroad  and  drayage 
charges,  storage  in  case  the  wool  is  stored  in  warehouses,  and 
insurance  until  the  wool  is  disposed  of.* 

*  See  U.  S.  Industrial  Commission,  vol.  vi,  p.  330 
National    Association    of    Wool    Manufacturers':      The   Annual 
Wool  Eeview   (1912),  p.  308.  annual 

ybid.  (1910),  p.  307. 

*U.  S.  Industrial  Commission,  vol.  vi,  pp.  332,  335-336      Com- 
missions in  middle-western  and  eastern  centers  1   to   U  cents  dTp 

markets  5  per  cent,  on  smaU  lots  and  2J  per  cent  on  large  lots. 


THE  WOOL  MARKET 


217 


(3)  Manufacturers  sometimes  buy  direct  from  the  west- 
ern growers,  in  any  of  the  ways  mentioned  in  connection  with 
wool  dealers.  This  practice  has,  however,  never  become  com- 
mon because  there  may  be  numerous  grades  in  the  wool  clip  as 
offered  by  the  growers.  Since  the  manufacturer  desires  par- 
ticular grades  it  has  been  to  his  interest  to  buy  from  central 
dealers  and  commissionmen  who  after  sorting,  classifying  and 
grading  can  provide  the  grades  which  he  wishes  to  use. 

(4)  As  in  case  of  the  livestock  trade  the  wool  produced 
in  regions  where  sheep  raising  is  not  conducted  on  a  large 
scale  is  frequently  bought  by  local  dealers.  These  local  deal- 
ers may  buy  on  their  own  account  with  a  view  to  selling  di- 
rectly to  central  dealers  or  manufacturers  or  consigning  it  to 
central  commissionmen ;  or  they  may  act  as  commission  agents 
or  buyers  for  central  dealers  or  manufacturers,  receiving  from 
1  to  2  cents  per  pound  of  wool  shipped  by  them. 

(5)  Some  growers  have  undertaken  to  handle  their  wool 
cooperatively  either  at  the  central  markets  or  locally.  Some 
five  hundred  western  growers  have  established  a  cooperative 
terminal  wool  warehouse  at  Chicago  in  order  to  handle  their 
wool  in  the  same  way  that  wool  is  handled  by  commissionmen 
and  dealers  in  the  East,  so  as  to  retain  the  middleman's  profit, 
discourage  the  sale  of  wool  on  the  sheep's  back,  store  their 
wool  until  sold,  and  obtain  loans  from  banks  up  to  two-thirds 
of  its  value.^  Some  of  the  shipping  associations  or  Iamb  clubs 
mentioned  in  connection  with  the  sale  of  livestock  (page  178), 
moreaver,  constitute  local  wool-shipping  associations  the  mem- 
bers of  which  ship  or  sell  their  wool  as  well  as  their  sheep  co- 
operatively. 

The  Pnrcliase  of  Imported  Wool. — Most  of  the  wool  im- 
ported into  the  United  States  is  purchased  in  foreign  wool 
markets  by  the  agents  or  buyers  of  American  wool  dealers  and 
manufacturers  either  on  public  markets  or  privately.  (1) 
Much  wool  is  bought  by  American  buyers  at  auction  in  the 
public  "wool  sales"  of  London,  Liverpool,  Antwerp,  and  other 
European  wool  centers.    At  London,  for  example,  Australian, 

*23  I.  C.  C.  Reports  172;  National  Association  of  Wool  Manufac- 
turers, 23  Annual  Wool  Beview  (1909),  p.  522;  Ihid.  (1910),  p.  307. 


1 


-II 


'•     f 


I 


:ii 


iii 


1 11 


218 


AGRICULTURAL  COMMERCE 


N-ew  Zealand,  South  African  and  other  wools  are  catalogued, 
exposed  m  warehouses  for  examination  and  auctioned  in  the 
public  salesroom  on  Coleman  Street.      (2)    Similar  public 
auction  sales  have  been  established  in  various  interior  and 
seaboard  wool  markets  in  Australia  and  New  Zealand,  Ameri- 
can buyers  appearing  particularly  at  Melbourne  and  Gellong. 
Their  purchases,  however,  are  less  important  than  those  made 
in  London,  most  of  the  Australasian  wool  being  imported  in- 
directly.    (3)  Much  foreign  wool  is  purchased  privately  from 
foreign  dealers  and  commissionmen,  particularly  in  South 
America  and  in  the  countries  which  produce  carpet  and  other 
coarser  wools,  but  to  some  extent  also  in  the  British,  European 
and  Australasian  markets  where  public  wool  sales  have  been 
established.     (4)  Some  foreign  wool  is  purchased  directly  by 
private  sale  from  foreign  growers  at  the  ranches  or  at  the 
wool  centers  of  the  countries  in  which  it  is  grown.^ 

Wool  Pkices 

It  is  at  the  large  central  markets  of  the  East,  particularly 
at  Boston,  where  the  prices  paid  for  American  wool  are  de- 
termined,  for  it  is.  there  that  both  domestic  and  foreign  wool 
is  concentrated.  The  marhet  supply  of  wool  diifers  from  that 
of  any  of  the  agricultural  commodities  previously  discussed 
m  that  it  is  more  largely  influenced  by  foreign  production. 
1  imported  wool,  being  purchased  abroad  in  competition 
with  the  buyers  of  many  other  countries,  cannot  be  bought  at 
prices  warranted  by  the  domestic  wool  output,  and  conse- 
quently the  prices  of  American  wool  are  influenced  largely  by 
the  foreign  as  well  as  the  available  domestic  supply. 

The  influence  of  market  demand  is  likewise  international, 
tor  although  European  mills  do  not  use  American  wool  they 
are  m  the  market  for  huge  quantities  of  Australian,  New  Zea- 
land, South  American  and  South  African  wool  of  the  grades 
which  compete  with  American  wool  in  the  markets  of  the 
United  States.  The  influence  of  demand  and  supply  upon 
^See  Tariff  Board,  vol.  i,  pp.  392-394;  468-470. 


THE  WOOL  MARKET 


219 


the  price  of  American  wool  has  for  many  years  differed  from 
the  influence  of  these  factors  upon  American  grain,  cotton 
and  livestock  prices  in  that  domestic  wools  were  protected  by 
high  import  duties.  Other  domestic  farm  staples  were  also 
protected,  but  since  there  was  until  recently  little  occasion  in 
their  case  to  import  competitive  commodities  from  abroad 
their  prices  were  not  greatly  affected  by  the  import  duties 
imposed.  American  wool  prices  were,  however,  not  main- 
tained by  the  full  amount  of  the  duties  paid  on  foreign  woot 
because  all  imported  wools  are  by  no  means  competitive  and 
there  are  other  forces  which  act  independently  of  the  tariff. 

The  prices  of  American  wool  are  to  some  extent  influ- 
enced by  the  various   costs  of  production  previously  men- 
tioned, but  the  international  character  of   the  wool   trade 
minimizes   their   effect,   for   the   lower    producing   costs   of 
competing  Australian,  New  Zealand,  South  American  and 
South  African  wool  are  also  instrumental.     Shipping  and 
selling  costs  influence  the  relative  prices  at  the  various  mar- 
kets somewhat,  but  being  deducted  from  the  growers'  prices 
for  the  most  part,  they  affect  producers'  prices  or  profits  more 
largely  than  the  prices  paid  by  the  mills.    Railroad  charges 
of  from  $1  to  $2  per  100  pounds  of  wool  shipped  from  the 
mountain  or  Pacific  states  are  but  a  small  percentage  of  ter- 
ritory wool  ^  prices  which  on  May  9,  1914,  ranged  from  50  to 
60  cents  per  pound  (scoured  basis)  in  the  Boston  market,  and 
rates  of  52  cents  per  100  pounds  from  Chicago  to  Boston  do 
not  greatly  influence  the  price  of  unwashed  wools  of  the  Ohio 
Valley  selling  at  20  to  2^  cents  per  pound. 

Differences  in  quality  and  condition  largely  affect  the 
prices  paid  at  the  central  markets  for  the  various  types  of 
American  wool.  Thus  the  prices  vary  according  to  whether 
the  wool  is  sold  in  the  unwashed,  washed  or  scoured  condition. 
When  Ohio  unwashed  half-bloods,  for  example,  sell  for  24 
and  24J  cents  per  pound  the  same  grade  of  Ohio  washed 
wool  sells  for  26  and  26^  cents,  and  the  Montana  staple  half- 
bloods  which  are  sold  in  the  Boston  market  on  the  scoured 
basis  sell  at  53  cents  and  54  cents.  The  quality  of  the^ool 
*  Wool  grown  in  Montana,  Wyoming  and  Idaho. 


,1 


)l 


220 


AGRICULTUEAL  COMMERCE 


depends  largely  upon  the  percentage  of  merino  blood  in  the 
sheep,  the  geographical  region  in  which  the  wool  is  produced, 
Its  scouring  percentage,  the  frequency  of  shearing,  i  e' 
whether  12  or  8  or  6  months'  growth,  and  the  absence  or 
presence  of  any  special  defects.  A  glance  at  the  Boston  price 
quotations  will  show  that  these  considerations  variously  in- 
fluence the  prices  paid  at  the  central  markets.^ 

In  the  West  where  most  of  the  wool  is  bought  directly  by 
dealers  and  manufacturers  or  consigned  to  central  commis- 
sionmen,  the  prices  paid  to  the  growers  are  based  upon  the 
current  prices  paid  at  the  central  markets.  The  buyers  deduct 
from  the  latter  the  estimated  shrinkage  of  the  wool,  railroad 
charges,  packing  costs,  baling  costs  if  any,  drayage,  and  other 
handling  and  buying  costs.  The  growers  of  the  northwestern 
and  southwestern  ranges  receive  from  2  to  4  cents  less  per 
pound  than  the  ruling  price  of  the  Boston  wool  market.  If 
consigned  to  a  central  commissionman  the  commission  charge 
and  insurance  costs,  if  any,  are  also  deducted  from  the  grow- 
ers' balance. 

In  the  Ohio  and  Mississippi  valleys  where  much  wool  is 
purchased  by  local  dealers  or  local  commissionmen,  and 
where  most  growers  produce  wool  merely  as  a  side  line,  the 
difference  between  the  growers'  and  eastern  market  prices 
sometimes  runs  from  five  to  over  eight  cents  per  pound  be- 
cause the  local  middleman's  profit  as  well  as  the  usual  costs 
are  deducted.  Here,  moreover,  little  attention  is  given  to 
grade  and  condition  by  local  buyers,  who  usually  pay  a  uni- 
form price  at  any  particular  time  and  not  infrequently  base 
this  price  upon  the  less  desirable  offerings.^ 

BIBLIOGRAPHY 

V\^RiGHT,  C.  W.    Wool-Growing  and  the  Tariff  (1910),  Chaps. 

7,  9  and  appendices. 
Interstate  Commerce  Commission:     23  I.  C.  C.  Reports  151 

(Mar.  21,  1912). 


^See  chap,  xiii,  pp.  288,  289. 

*  U.  S.  Tariff  Board,  vol.  i,  pp.  560,  590. 


THE  WOOL  MARKET 


221 


Interstate  Commerce  Commission:     19  I.  C.  C.  Reports  535 

(Dec.  14,  1910). 
National  Association  of  Wool  Manufacturers:     Annual  Wool 

Review,  Bulletin  of  the  Association. 
United  States  Department  of  Agriculture :    Year  Book  and  The 

Monthly  Crop  Report  (for  statistics  and  prices). 
United  States  Industrial  Commission:     Distribution  of  Farm 

Products,  Vol.  6,  part  9  (1901). 
United  States  Tariff  Board :    Wool  and  Manufactures  of  Wool 

(1912),  Vol  L 

{See  also  references  on  trade  in  livestock,  pp.  200,  201. 


i 


i 


«< 


if 


{ 


CHAPTER   XI 


THE  LEAF  TOBACCO  TEADE 


Another  of  the  great  American  agricultural  staples,  the 
annual  value  of  which  exceeds  that  of  the  country's  wool  clip, 
is  leaf  tobacco.  Since  1909  the  crop  has  ranged  from  nine 
hundred  thousand  to  one  billion  pounds,  valued  at  from 
$85,000,000  to  $122,000,000.  India,  Eussia,  Hungary,  Java, 
Japan,  Cuba,  Germany,  Turkey  and  other  countries  produce 
much  leaf  tobacco,  but  none  grow  one-half  the  crop  annually 
grown  in  the  United  States,  and  none  export  one-half  the 
quantity  annually  exported  from  this  country.  Leaf  tobacco 
is  important  both  in  domestic  and  foreign  commerce,  and  the 
trade  methods  pursued  are  in  many  respects  distinctive. 

Leaf  Tobacco  Districts  and  Types 

As  in  the  case  of  cotton,  leaf  tobacco  is  confined  to  certain 
districts  within  which  it  constitutes  the  staple  agricultural 
crop.  Similarly,  from  the  botanical  standpoint  many  vari- 
eties are  grown.  Commercially,  however,  leaf  tobacco  is  clas- 
sified in  greater  detail  than  any  of  the  agricultural  staples 
previously  discussed  because  the  finished  tobacco  products 
made  out  of  the  leaf  tobacco  vary  widely  and  require  distinc- 
tive qualities  in  their  raw  material. 

Commercial  Classes  and  Types. — The  tobacco  trade  gener- 
ally recognizes  two  chief  classes  of  leaf  tobacco:  (1)  cigar 
tobacco  and  (2)  chewing,  smoking,  cigarette,  snuff  and  export 
tobacco.  These  classes  which  are  based  upon  the  adaptation 
of  the  leaf  tobacco  for  certain  uses  are  sometimes  subdivided 
more  fully,  each  of  the  groups  comprising  the  second  class 
being  regarded  as  a  separate  class ;  but  there  is  so  much  over- 

222 


THE  LEAF  TOBACCO  TRADE 


223 


lapping  in  the  use  of  leaf  tobacco  for  the  making  of  chewing, 
smoking,  cigarette  and  snuff  tobacco  and  for  exportation  that 
the  twofold  classification  is  more  generally  accepted. 

Leaf  tobacco  classes  are  in  turn  made  up  of  types  based 
upon  the  possession  of  certain  qualities  such  as  color,  strength, 
elasticity,  body  and  flavor,  or  upon  the  method  of  curing  such 
as  sun-cured,  air-cured,  flue-cured  or  cured  by  open  fires.^ 
The  standard  grouping  of  leaf  tobacco  into  classes  and  types, 
and  the  quantity  of  each  class  and  type  produced  in  recent 
years  is  shown  in  table  No.  XI  (page  224). 

Leaf  tobacco  types  are  further  divided  into  a  large  and 
varying  number  of  grades,  which  are  based  upon  different  de- 
grees of  excellence  in  quality.  Burley  tobacco,  for  example, 
is  commonly  assorted  by  the  growers  into  six  grades,^  and 
yellow  tobacco  into  from  six  to  fifteen.^  When  repacked,  re- 
sorted and  rehandled  by  dealers,  packers  or  manufacturers  the 
number  of  grades  may  be  further  increased  so  as  to  disclose 
in  detail  any  differences  in  quality  which  the  leaf  tobacco  of 
any  given  type  may  possess. 

Leaf  Tobacco  Districts. — As  shown  in  the  accompanying 
map  (No.  X)  and  in  Table  No.  XI,  the  cigar  leaf  types  are 
grown  principally  in  certain  districts  of  Pennsylvania,  Wis- 
consin, New  England,  Ohio,  New  York,  Georgia  and  Florida. 
The  great  bulk  of  cigar  leaf  is  grown  in  the  northern  states. 
Eleven  counties  of  Pennsylvania,  particularly  Lancaster 
County,  which  usually  produces  more  tobacco  than  any  other 
county  in  the  country,  grow  leaf  tobacco  which  is  used  largely 
for  cigar  fillers,  although  a  small  per  cent,  is  used  for  cigar 
wrappers  and  binders.*  Fourteen  counties  in  southern  and 
western  Wisconsin  grow  leaf  tobacco  which  is  used  mainly  for 

*  J.  B.  Killebrew  and  H.  Myrick:    Tobacco  Leaf,  p.  46. 

*  Flyings  or  sand  leaves  or  so-called  **spod,"  trash,  Ings,  bright 
leaf,  red  leaf  and  tips. 

*  Danville,  Va.,  grades  are:  A  Wrappers,  (1)  common,  (2)  medium, 
(3)  good,   (4)  fine,  (5)  fancy;  B,  Fillers,  (1)   common,  (2)  medium, 

(3)  good,  (4)  fine;  C  SmoTcers,  (1)  common,  (2)  medium,  (3)  good, 

(4)  fine;  D  Cutters,  (1)  common,  (2)  medium,  (3)  good, and  (4)  fine. 

*  See  J.  P.  Killebrew,  Tobacco  Districts  and  Types,  in  Circular  18 
of  Bureau  of  Statistics,  Department  of  Agriculture. 


E'  I 


i;. 

?i 
it'f 

i 


i 


224  AGRICTJLTmiAL  COMMEECE 

TABLE  XI 
Types,  Districts,  Output  and  Prices  op  Leap  Tobacco 


Types  and  Districts 

Production  in  Pounds 
(000  omitted) 

Grower's  Prices  per  Lb. 
on  Dec.  1  (ct8.)t 

' 

1899* 

1910* 

1913t 

1910 

1913 

I.  CiGAB  Type: 

New  Ejneland 

23,778 
13.958 
41,503 
48,652 
45,500 
1,711 
550 

158,143 

51,538 

88,134 

6,700 

3,862 

75,803 

8,354 
61,742 

108,450 

83,762 

27,224 

102 

18,647 

37,205 
5,000 
64,500 
56,000 
35,700 
3,468 

273,900 

74.400 

89,600 

29.75q 

16,500 

91.200 

12,150 
64,000 

143.500 

63,250 

27,710 

275 

14.985 

38,295 
4,386 
46,680 
37,449 
50,740 
5.800 

176,776 

58,500 

44,000 

16,848 

11,400 

80,500 

12,500 
58.384 

165,600 

117,150 

20,976 

270 

7,260 

16.1 
8.5 
9.3 
8.2 
7.5 

22.1 

9.6 

7.8 

7.2 

7.4 

6.8 

8.8 

8.5 
8.0 

10.4 

10.0 

7.7 
25.0 

21  0 

New  York 

12  2 

Pennsylvania 

7  5 

Ohio — Miami  Valley . . . 
Wisconsin 

11.0 
12.0 

Georgia  and  Florida . . . 
Tpthh 

31.0 

II.  Chewing,    Smoking, 
Snuff   and   Export 
Types: 

Burley  district 

Dark  di.stricts  of  Ken- 
tucky and  Tennes- 
see: 
Paducah  district .... 
Henderson    or    stem- 
ming district 

Upper    Green    River 

district 

Upper      Cumberland 

district •. . . . 

Clarksville    &    Hop- 
kinsville  district . 
Virginia  sim-cured  dis- 
trict   

12.3 

7.7 
7.3 
7.0 
7.3 
9.0 
8.5 

Virginia  dark  district, . 

Bright  yellow  district: 
Old     Belt  —  Virginia 
and  North  Caro- 
lina   

7.0 
18  5 

New      Belt  —  North 

Carolina  and 

South  Carolina.. 

Maryland  and  Eastern 

^  Ohio  Export 

Perique — Louisiana .... 
Scattering 

17.9 

9.1 
25.0 

.... 

Total 

868,113 

1,103,415 

953,734 

9.3 

12.8 

*  U.  S.  Census  returns. 

t  U.  S.  Department  of  Agriculture  Estimates. 


cigar  binders,  and  fillers,  Wisconsin  being  known  as  the  binder 
state  because  75  per  cent,  of  its  crop  is  used  for  that  purpose. 
Eleven  New  England  counties,  particularly  those  of  the 
Connecticut  and  Housatonic  valleys,  produce  cigar  wrappers, 
binders  and  fillers.  A  larger  share  of  the  New  England  leaf 
is  used  for  wrappers  and  for  that  reason  its  value  is  usually 


Map  X. — Leaf  Tobacco  DisTRicra 


Production  Data  as  in  Thirteenth  U.  S.  Census 

1.  Wisconsin  Cigar  Leaf. 

2.  New  York  Cigar  Leaf. 

3.  Bright  Yellow  New  Belt. 

4.  Va.  Sun  Cured;  Va.  Dard;  and  Bright  Yellow  Old  Belt, 

5.  Clarksville  and  Hopkinsville  Dark. 

6.  Paducah  Dark. 

7.  Burley  Leaf. 


^.    11 


225 


Ill 


i  ' 


'■I 


r 


h 


226 


AGRICULTURAL  COMMERCE 


higher  than  that  of  the  tobacco  grown  in  other  northern  states. 
The  tobacco  grown  in  fourteen  counties  of  the  Miami  Valley 
in  Ohio  as  in  the  case  of  Pennsylvania  is  used  mainly  for  cigar 
fillers.  That  grown  in  the  eight  counties  which  comprise  the 
Onondago  and  Big  Flats  tobacco  districts  of  New  York  is 
similar  to  the  New  England  crop  but  is  of  somewhat  inferior 
average  quality  and  less  of  it  is  used  for  cigar  wrappers.  The 
highest  type  of  domestic  cigar  tobacco  is  grown  in  the  five 
tobacco  counties  of  Georgia  and  Florida,  it  being  used  largely 
for  cigar  wrappers. 

Of  far  greater  importance  than  the  cigar  leaf  districts  are 
the  large  districts  in  Kentucky,  Virginia,  North  Carolina, 
Tennessee,  South  Carolina,  Maryland,  West  Virginia  and 
southern  Ohio  which  produce  the  chewing,  smoking,  snuff, 
cigarette  and  export  types.  Their  value  per  pound  is  on  the 
whole  less  than  that  of  the  cigar  types,  but  their  total  quan- 
tity and  value  are  far  in  excess.  Indeed  Kentucky  alone 
produces  one-third  of  the  country's  entire  leaf  tobacco  crop. 
The  hurley  district  extends  throughout  the  central  and 
eastern  parts  of  Kentucky  and  certain  counties  in  Ohio,  In- 
diana and  West  Virginia.  It  produces  the  so-called  "hurley'' 
leaf,  much  of  which  is  used  in  the  United  States  to  manufac- 
ture chewing  and  smoking  tobacco  and  cigarettes  and  some  of 
which  is  also  exported  to  foreign  markets. 

The  principal  dark  districts  of  Kentucky  and  Tennessee 
which  produce  the  various  types  of  "dark"  leaf  are  five  in 
number.  The  leaf  grown  in  the  Paducah  district  of  western 
Kentucky  and  Tennessee,  instead  of  being  air-cured  as  in  the 
hurley  and  cigar  leaf  districts,  is  cured  by  the  open-fire  proc- 
ess. It  is  largely  exported  to  foreign  countries,  although  some 
of  it  is  retained  for  the  manufacture  of  snuff  and  cheap  cigars, 
chewing  and  smoking  tobacco.  To  the  west  and  northwest 
from  this  district  in  Kentucky  and  Indiana  is  the  Henderson 
district,  also  called  the  "stemming"  district  because  most  of 
its  crop  is  exported  to  Great  Britain  in  the  form  of  "strips" 
which  consist  of  the  leaves  after  the  stem  or  midrib  has  been 
taken  out  or  "stemmed."  The  crop  is  cured  either  by  the  air- 
curing  or  open-fire  processes  and  nearly  all  of  it  is  shipped 


111 


THE  LEAF  TOBACCO  TRADE 


227 


abroad.  The  better  grades  of  dark  tobacco  grown  in  the  upper 
Green  River  and  Upper  Cumberland  districts  of  Kentucky, 
where  the  air-curing  process  prevails,  are  used  for  chewing 
tobacco,  and  the  lower  grades  for  smoking  tobacco  and  for 
exportation.  The  output  of  the  Clarksville  and  Hopkinsville 
district  of  Tennessee  which  is  cured  by  the  open-fire  process, 
is  prepared  mainly  for  the  export  market,  and  as  in  the  case 
of  the  Paducah  district  much  is  shipped  to  Great  Britain  in 
the  form  of  strips. 

The  crop  of  the  ''sun  cured"  district  of  northern  and  cen- 
tral Virginia  which  is  partly  cured  in  the  sun  and  partly  air- 
cured,  is  used  largely  in  the  United  States  in  the  manufacture 
of  chewing  and  smoking  tobacco.  That  of  the  dark  district  of 
Virginia,  located  in  the  southern  part  of  the  state,  on  the 
contrary  is  cured  with  open  wood  fires,  and  most  of  it  is  ex- 
ported. Smaller  quantities  are  used  in  the  United  States  to 
make  cheap  cigars,  snuff,  smoking  tobacco,  plug  fillers,  and 
some  of  highest  grades  for  plug  wrappers. 

The  hright  yellow  district  divides  itself  into  two  belts. 
The  "Old  Belt"  which  includes  various  counties  in  the  south- 
ern part  of  Virginia  and  the  northern  part  of  North  Carolina, 
cures  its  crop  by  the  flue-curing  process.  Some  of  it  is  ex- 
ported but  most  of  it  is  retained  for  the  manufacture  of  chew- 
ing and  smoking  tobacco.  The  crop  of  the  "New  Belt,"  which 
is  located  in  the  eastern  and  southern  part  of  North  Carolina 
and  the  northern  part  of  South  Carolina,  is  also  cured  by  flue- 
curing  process,  but  in  this  district  the  leaves  are  "primed," 
i  e.,  gradually  cut  from  the  stalk  in  the  field  as  they  ripen. 
Some  of  the  bright  yellow  tobacco  of  this  belt  is  exported,  but 
most  of  it  is  used  in  the  domestic  manufacture  of  cigarettes 
and  smoking  tobacco. 

In  certain  counties  extending  through  Maryland,  West 
Virginia,  and  eastern  Ohio  the  so-called  ''export  tobacco''  is 
produced.  This  is  a  very  ^lieavy  shipping"  tobacco  which  is 
cured  either  by  the  air-cured  or  open-fire  methods,  and  most 
of  it  is  exported  to  France,  Holland  and  Germany.  Small 
quantities  are  retained  for  cheap  domestic  cigars  and  smoking 
tobacco. 


V 


I'    '     ' 

'!   .  i 


228 


AGKICULTURAL  COMMERCE 


The  total  crop  of  perique  tobacco  is  but  small  and  has  in 
recent  years  declined,  nearly  all  of  it  being  grown  in  St. 
James  Parish,  Louisiana.  It  is  of  a  high  quality,  however, 
bringing  prices  as  high  as  those  paid  for  the  cigar  tobacco 
grown  in  Georgia  and  Florida,  and  is  known  for  its  distinc- 
tive qualities.  After  being  air-cured,  the  leaves  are  stemmed, 
made  into  loose  twists,  packed  into  boxes  and  subjected  to 
pressure.  The  twists  are  unrolled  to  permit  absorption  of 
juices,  retwisted  and  recompressed  many  times  until  finally 
cured.  Formerly  it  was  sold  in  rolls  or  '^carrots"  wrapped 
in  cotton  cloth  and  wound  with  rope  and  weighing  from  one 
to  four  pounds  each,  but  more  recently  the  crop  has  been 
packed  into  second-hand  whiskey  barrels  each  holding  about 
^\Q  hundred  pounds.  Perique  carrots  were  long  regarded  as 
a  form  of  currency  accepted  by  local  merchants  in  exchange 
for  goods  and  in  payment  of  debts.^ 

Methods  of  Selling  Leaf  Tobacco  in  the  United  States 

The  methods  of  selling  the  crops  of  the  cigar  leaf  districts 
differ  from  those  prevailing  throughout  the  southern  states 
where  the  heavier  types  are  mainly  grown. 

Sale  of  Cigar  Types. — There  are  no  organized  markets  for 
cigar  leaf  tobacco,  which  is  mainly  grown  in  the  northern 
states.  Nearly  all  of  it  is  sold  by  private  sale  to  packers, 
dealers  or  cigar  manufacturers.  (1)  The  most  common 
method  is  to  sell  privately  to  so-called  "packers,"  whose  agents 
sometimes  purchase  a  grower's  crop  in  the  field  before  it  is 
harvested  but  more  frequently  make  bids  at  the  tobacco  barns. 
After  the  tobacco  is  cured  the  growers  strip  the  leaves  from 
the  stalks,  sort  them  into  grades  of  quality,  tie  them  in  bun- 
dles of  about  forty  pounds  each,  wrap  them  in  heavy  paper 
and  deliver  them  to  the  packer's  local  warehouse  or  ship  them 
to  his  headquarters  which  may  be  in  New  York,  Chicago  or 
other  cities.  The  packer's  services  are  various:  (a)  he  acts 
as  a  local  dealer  who  buys  leaf  tobacco  from  the  growers;  (b) 

*  Killebrew  and  Myrick,  p.  376, 


THE  LEAF  TOBACCO  TRADE 


2^9 


he  regrades,  ferments  and  packs  it  into  cases  of  from  300  to 
350  pounds  each;  (c)  he  carries  stock  for  many  of  the  small 
local  cigar  manufacturers  operating  in  the  cigar  leaf  districts; 
(d)  he  sometimes  sells  to  local  manufacturers  on  credit, 
thereby  acting  as  a  banker,  and  (e)  he  sells  much  tobacco  by 
sample  to  the  wholesale  dealers  or  jobbers  and  cigar  manufac- 
turers located  throughout  the  United  States. 

(2)  Cigar  leaf  is  sometimes  privately  sold  by  the  growers 
direct  to  manufacturers.  The  American  Cigar  Company,  for 
example,  has  leaf -buying  stations  at  Hartford  and  Windsor, 
Connecticut;  Fulton,  New  York;  Dayton,  Ohio;  Lancaster, 
Pennsylvania ;  and  Brodhead,  Deerfield,  Edgerton,  Jonesville, 
Madison,  Sparta,  Stoughton,  Viroqua  and  Watertown,  Wis- 
consin ;  and  has  plants  at  various  places  for  the  rehandling, 
packing  and  storage  of  cigar  leaf  tobacco.^ 

(3)  Some  cigar  leaf  is  privately  sold  by  the  growers  to 
the  wholesale  dealers  or  jobbers  who  may  act  as  packers  as 
well  as  jobbers.  The  jobber's  supply  of  cigar  leaf,  however, 
is  mainly  obtained  from  the  packing  concerns. 

(4)  Because  of  its  nearness  to  the  dark,  hurley  and  export 
leaf  districts,  a  portion  of  the  cigar  leaf  of  the  Miami  Valley 
in  Ohio  is  publicly  sold  on  the  auction  market  at  Cincinnati, 
but  this  is  an  exception  to  the  usual  methods  of  selling  the 

cigar  types. 

The  system  of  middlemen  is  expensive,  the  original  mar- 
ket value  of  the  cigar  leaf  being  advanced  from  40  to  80 
per  cent,  by  the  time  the  crop  reaches  the  manufacturers. 
It  prevails  largely  because,  in  contrast  with  other  branches  of 
tobacco  manufacturing,  cigars  are  made  by  hundreds  of  small 
cigar  makers  who  have  insufficient  capital  to  purchase  direct 
from  the  farmers,  send  agents  to  organized  markets,  or  do 
their  own  grading,  fermenting,  packing  and  storing.  The 
growers  are,  however,  not  without  redress  as  regards  the 
prices  which  they  receive.  The  very  absence  of  control  over 
the  cigar-manufacturing  industry  by  a  few  large  concerns  has 
assured  a  certain  degree  of  competition  between  cigar  leaf 

*U.  S.  Bureau  of  Corporations;    Tho  Tobacco  Industry,  Part  I, 
p.  297. 


•I 
I 


1 


f 


i 

c 


^ 

i'i 

j, 

L 

230 


AGKICULTUKAL  COMMEKCE 


buyers.  The  system  of  local  cigar  manufacture  in  small  fac- 
tories and  households  such  as  prevails  in  the  Pennsylvania 
district,  moreover,  enables  the  grower  in  case  of  low  prices 
to  undertake  the  making  of  cigars  on  his  own  account  or  for 
a  local  manufacturer.  Growers  may  also  if  necessary  pack 
their  crop  for  storage  or  for  shipment  to  markets  located  at  a 
distance.  Their  main  difficulty  lies  in  the  absence  of  definite 
knowledge  as  to  current  prices  for  cigar  leaf,  neither  the 
buyers  nor  the  individual  growers  being  inclined  to  disclose 
the  real  price  for  which  the  crop  changed  hands. 

Sale  af  Smoking,  Chewing,  Snuff  and  Export  leaf. 
—  (1)  In  most  of  the  southern  tobacco  districts  a  large  part 
of  the  leaf  tobacco  crop  is  sold  at  auction  in  public  tobacco 
warehouses.  In  contrast  with  the  northern  leaf  tobacco  dis- 
tricts, these  public  warehouses  located  at  large  markets  such 
as  Louisville,  Cincinnati,  Clarksville,  Hopkinsville,  Eichmond, 
Danville  and  Baltimore  and  at  numerous  smaller  towns  in  the 
growing  districts  constitute  an  organized  leaf  tobacco  market. 

The  auction  sales  are  conducted  in  two  general  ways :  (a) 
by  the  'loose-floor"  method,  and  (b)  by  the  "prized"  or  "in- 
spected leaf"  method.  The  former  is  particularly  important 
in  the  Virginia  sun-cured,  Virginia  dark,  and  bright  yellow 
districts,  although  it  has  also  been  established  to  some  extent 
in  the  Clarksville  and  Hopkinsville  and  Paducah  dark  dis- 
tricts, and  in  the  hurley  tobacco  districts.  Auction  sales  of 
prized  or  inspected  leaf  tobacco  prevail  more  largely  in  the 
large  general  tobacco  markets  at  Louisville,  Cincinnati  and 
Baltimore  where  many  types  of  leaf  are  sold,  and  in  the 
Paducah,  Henderson,  Upper  Green  River  and  Upper  Cum- 
berland dark  districts,  the  hurley  district  and  the  Maryland 
and  East  Ohio  export  district,  the  latter  shipping  most  of 
its  prized  tobacco  for  sale  in  Baltimore  warehouses.  Some 
prized  tobacco  is  also  sold  at  auction  in  Virginia  and  the 
Carolinas. 

Under  the  loose-floor  method,  the  growers,  after  curing 
the  leaves,  stripping  them  from  the  stalk  and  tieing  them 
into  small  bundles  containing  from  five  to  twenty  leaves — 
the  size  of  the  bundles  differing  in  the  various  districts — or 


THE  LEAF  TOBACCO  TRADE 


231 


placing  them  in  sheets  without  tieing  them  as  is  sometimes 
done  in  the  "New  Belt"  of  the  bright  yellow  district   haul 
them  to  the  nearest  auction  warehouse.     The  warehouses 
are  equipped  with  sufficient  floor  space  and  light  to  permit  of 
the  ready  examination  of  the  tobacco  leaves,  when  placed  m 
long  piles  on  the  floor,  by  the  various  buyers  who  congregate 
there     Meanwhile  in  moving  the  tobacco  from  the  farmer  s 
wagons  to  the  assigned  floor  space  it  is  weighed  and  tagged 
with  cards  showing  the  warehouse  number,  weight  of  pUe 
and  name  of  the  owner.     It  is  then  "auctioned  off    to  the 
highest  bidder  by  a  tobacco  auctioneer,  the  owner,  however, 
reserving  the  option  of  rejecting  the  bids  and  selling  his  crop 
privately  or  at  a  subsequent  auction.     The  usual  warehouse 
costs  are  a  weighing  charge  of  10  to  15  cents  per  pile,  an 
auction  fee  of  10  to  15  cents  per  100  pounds,  or  a  set  fee  of 
25  cents  in  case  the  pile  exceeds  100  pounds  in  weight,  and 
a  commission  of  2^  per  cent,  on  the  proceeds  of  the  sale  for 
the  general  service  of  the  warehouseman.^ 

Under  the  prized  or  inspected  leaf  method,  the  tobacco  is 
delivered  to  the  warehouse  by  the  grower  in  hogsheads  hold- 
ing-variously  in  different  districts— from  500  to  1,800 
pounds,  or,  as  is  sometimes  done  in  the  bright  yellow  districts, 
in  so-called  "tierces"  holding  from  250  to  600  pounds  When 
so  packed  in  hogsheads  or  tierces  the  tobacco  is  said  to  be 
"prized  "  Its  sale  at  public  auction  is  subjected  to  control  by 
the  states  and  by  boards  of  trade  or  tobacco  exchanges,  so  as 
to  insure  fair  dealings  between  buyers  and  sellers.  As  is 
stated  by  Messrs.  KiUebrew  and  Myrick  in  their  standard  work 
on  Leaf  Tobacco: 

It  is  the  purpose  of  the  law  that  these  regulations  will  so 
cover  every  case  as  to  make  it  unnecessary  to  carry  disagree- 
ments to  the  courts.  Provision  is  made  that  no  warehouseman, 
or  any  one  of  his  employees,  is  allowed  to  participate  in  the 
profits  or  losses  from  the  purchase  or  sale  of  any  tobacco  m  the 
warehouse  with  which  he  may  be  connected.  The  inspectors 
of  tobacco  are  either  appointed  by  some  State  authority,  or 
elected  by  a  tobacco  board  of  trade.  In  Tennessee,  the  ware- 
» Killebrew  and  Myrick,  pp.  274-275. 


I 


I>  ^  . 


I 


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232 


AGRICULTURAL  COMMERCE 


housemen  are  created  inspectors  by  law,  but  they  may  appoint 
inspectors,  or  samplers,  for  whose  acts  the  warehousemen  are 
held   responsible  by  the  regulations  of  the  tobacco   board   of 
trade.     These  deputy  inspectors  are  elected  by  the  vote  of  the 
warehousemen  and  buyers,  who  have  an  equal  voice  in  their 
selection.     In  cases  where  differences  and  claims  arise,  these 
are  settled  by  an  arbitration  committee.     The  latter  consists 
usually  of  three  persons,  who  are  appointed  by  a  committee  of 
the  board  of  trade,  one  member  of  which  is  a  warehouseman 
and  another  a  buyer,  these  two  selecting  a  third  to  complete 
this  committee.     Provision  is  also  made  for  a  committee  of 
appeal,  which  has  the  power  to  confirm  or  reject  the  decision 
of  the  committee  of  arbitration.    The  warehouseman  is  obliged 
to  keep  his  house  in  good  condition  and  repair,  the  floors  fitted 
with  platforms,  or  skids,  which  will  elevate  the  hogsheads  at 
least  four  inches. 

Provision  is  also  made  for  the  penalizing  and  detection  of 
false  packing,  the  bonding  of  inspectors,  and  a  lien  on  the 
tobacco  to  cover  warehouse  charges  and  fees. 

The  auction  sales  of  prized  tobacco  are  based  upon  sam- 
ples which  are  drawn  by  official  inspectors,  the  hogshead  or 
tierce  being  opened,  inverted  and  then  lifted  from  the  to- 
bacco.   To  obtain  the  samples  the  solid  column  of  leaves  which 
is  thus  exposed  is  divided  at  various  places  each  of  which  is  • 
known  as  a  '"hreak/'  and  for  this  reason  the  auction  sales 
are  commonly  referred  to  as  tobacco  'breaks.''    To  the  sam- 
ples are  attached  and  sealed  labels  or  tags  showing  the  name 
of  the  warehouse  and  its  number,  the  name  of  the  seller  and 
inspector,  the  gross  weight,  date  of  inspection,  and  in  case  of 
reinspection  also  the  date  of  reinspection  and  newly  ascer- 
tained gross  weight.     The  warehouse  proprietor  also  issues 
a  tobacco  "note''  or  manifest  bearing  the  date  of  inspection 
or  reinspection,  old  and  new  weights,  name  of  warehouse, 
and  growers'  marks  or  numbers.    This  "note"  is  a  negotiable 
receipt  which  changes  hands  whenever  the  tobacco  is  sold  and 
requires  delivery  when  finally  presented  for  shipment.    Should 
the  owner  desire  to  store  his  crop  for  sale  at  some  future 
time  a  special  storage  receipt  is  issued  by  the  warehouse- 
man. 


THE  LEAF  TOBACCO  TRADE 


233 


Samples  are  auctioned  off  to  the  highest  bidder  the  bids 
usually  being  taken  at  advances  of  10  cents  per  100  pounds 
up  to  $6,  after  which  25  cents  is  the  minimum  advance  up  to 
$25,  and  then  50  cents  per  100  pounds.     The  growers,  as  m 
the  case  of  loose-floor  sales,  may  reserve  the  option  ot  re- 
jecting any  bid  offered.  'Frequently  as  many  as  five  hundred 
sales  are  made  in  a.  morning,  all  of  which  must  be  cashed 
within  a  specified  time.     The  grower  receives  his  pay  at  the 
warehouse  office  at  the  price  accepted  less  warehouse  charges, 
which  usually  vary  from  20  cents  to  $2.00  according  to  the 
quantity  sold,  inspection  and  sampling  fees  ranging  from  40 
cents  to  one  dollar  per  hogshead  (including  cooperage  and 
nails) ,  auction  fees  ranging  from  12i  cents  to  25  cents  per  sam- 
pie  sold,  a  commissionman's  fee  of  2^  or  3  per  cent    and  vary- 
ing storage  and  insurance  charges  if  stored  for  a  longer  time 
than  say  four  months.    If  shipped  to  the  warehouse  by  rail 
the  railroad  charges  are  also  deducted  from  the  balance  re- 
mitted to  the  grower.  :,..•.•    „ier. 
(2)  Leaf  tobacco  in  the  southern  tobacco  districts  is  also 
sold  in  various  ways  by  private  sale,     (a)  Many  growers  sell 
the  loose  leaves  as  stripped  from  the  stalks  at  their  barns,  for 
delivery  to  buyers'  prizing  houses,     (b)  They  sometimes  sell 
loose  leaf  tobacco  privately  at  the  public  warehouses,      (c) 
They  may  sell  prized  tobacco  at  their  barns,  or  (d)  privately 
at  the  public  warehouses,  and   (e)   some  leaf  tobacco,  also, 
particularly  in  the  Clarksville  and  Hopkinsville  districts,  is 
prized  for  the  farmers  by  hired  prizers,  and  is  stored  m  pri- 
vate warehouses,  to  be  finally  sold  by  private  salesmen  on  the 

basis  of  samples.  , 

Southern  Leaf  Tobacco  Markets.-The  markets  m  which 
the  southern  growers  sell  their  leaf  tobacco  crops  and  m 
which  much  leaf  tobacco  is  also  resold  by  dealers  and  other 
middlemen  are  too  numerous  for  complete  enumeration. 
Many  of  them  serve  but  small  parts  of  a  tobacco  district,  but 
nevertheless  are  of  importance  alike  to  growers  and  buyers. 
Among  the  largest  markets,  however,  are  Louisville,  Hender- 
son, Paducah,  Owensboro,  Hopkinsville,  Lexington  and  May- 
field  in  Kentucky;  Cincinnati,   Ohio;   Clarksville,   Sprmg- 


1' 


'fr 


■ii 


234 


AGRICULTUEAL  COMMERCE 


field,  Fashville,  and  Paris  in  Tennessee;  ,St.  Louis,  Mis- 
souri;  Eichmond,  Danville,  Petersburg,  Lynchburg  and 
Farmvile   in   Virginia;    Durham,    Winston-Salem,    Wilson, 

Maryland"""  '''  ^""^^  *^*'°^"^'  ^"^  Baltimore; 

Southern  leaf  Buyers.-Owing  to  the  large  degree  of  con- 
solidation in  those  branches  of  tobacco  manufacturing  which 
consume  the  various  heavy  types  of  leaf  grown  in  the  South, 
the  number  of  buyers  bidding  for  crops  is  smaller  than  it 
was  in  the  eighties  and  early  nineties.     Various  groups  of 
buyers,  however,  congregate  regularly  at  the  southern  mar- 
Many  of  the  buyers  represent  manufacturers  of  chewing 
smoking,  snuff,   cigarette,   stogie,  and  cheap  cigars.     The 
arger  manufacturing  concerns,  particularly,  maintain  special 
leaf-purchasing  departments  with  headquarters  at  the  leading 
marke  s  and  branches  and  buyers  throughout  the  surrounding 
districts.     Some  of  the  buyers  represent  dealers  who  prize 
remade,  rehandle,  resell  and  ship  tobacco  to  manufacturers 
and  exporters,  or  specialize  in  loaf  tobacco  strips  which  are 
ultimately  shipped  to  the  English  market.    The  dealers  may 
sell  their  supply  either  privately  or  on  the  large  public  auc- 
tion markets. 

At  many  leaf  markets,  especially  those  which  handle  the 
export,  dark  and  hurley  types,  the  agents  of  exporting  con- 
cerns are  important  buyers.     Exporting  of  leaf  tobacco  is 
conducted  by  two  principal  groups  of  concerns  .  ( 1 )  Private  ex- 
porting companies  ship  to  Great  Britain  and  smaller  quanti- 
ties to  Germany,  Holland,  Belgium,  Denmark,  Norway,  Swe- 
den  Africa   Australasia,  Japan  and  the  foreign  countries  of 
North  and  South  America.    The  Imperial  Tobacco  Company, 
for  example,  buys  and  exports  great  quantities  of  American 
tobacco  to  Great  Britain,  and  the  British-American  Tobacco 
Company  to  o  her  foreign  countries.     (2)  So-called  govern- 
ment   regies    have  buyers  in  the  United  States  and  ship  leaf 
tobacco  to  France,  Italy,  Austria  and  Spain.    They  represent 
the  government  monopolies  which  control  the  tobacco  trade 
in  those  countries. 


; 


THE  LEAF  TOBACCO  TRADE  235 

FOHEIGN  TkADE  in  liEAF  TOBACCO 

« 

Leaf  Tobacco  Exports.— The  exports  of  unmaimfactured 
tobacco  just  referred  to  have  since  the  close  of  the  nineteenth 
century  comprised  from  288-  to  380,000,000  pounds  annually 
or  over  one-third  of  the  country's  annual  crop.  So  important 
are  they  that  one  of  the  general  types  of  leaf  is  expressly 
known  as  export  tobacco,  and  in  addition  much  Kentucky  and 
Tennessee  dark,  hurley,  Virginia  dark  and  bright  yellow  to- 
bacco is  shipped  abroad.  The  principal  foreign  markets,  in 
their  usual  order  of  importance,  are  the  United  Kingdom, 
Germany,  Italy,  France,  Holland,  Canada,  Spain,  Belgium, 
Australia,  Africa  and  Japan. 

Leaf  Tobacco  Imports.— Though  the  largest  producer  and 
exporter  of  leaf  tobacco  in  the  world,  the  United  States  never- 
theless imports  each  year  from  25-  to  55,000,000  pounds  of 
foreign  leaf.  The  imports  consist  mainly  of  cigar  fillers, 
binders  and  wrappers  from  Cuba,  cigar  wrappers  from  Su- 
matra, and  cigarette  leaf  from  Turkey.  They  comprise  to- 
bacco types  which  are  not  grown  in  the  United  States  or  are 
not  produced  in  sufficient  quantities  to  meet  domestic  needs. 
Some  of  the  foreign  leaf  is  imported  directly  by  American 
manufacturers,  the  largest  of  which  maintain  foreign  buying 
agencies;  some  is  imported  by  importing  dealers,  and  still 
other  is  shipped  to  the  United  States  from  foreign  plantations 
owned  and  operated  by  large  American  tobacco  manufac- 
turers.^ 

Leaf  Tobacco  Prices 

Although  in  general  the  prices  paid  to  the  growers  of 
leaf  tobacco  in  the  United  States  vary  from  year  to  year 
according  to  the  commercial  supply  and  demand,  these  forces 
have  not  always  operated  with  exactness.  In  the  domestic 
cigar  leaf  trade  where  there  are  no  organized  public  markets 
and  each  sale  is  the  result  of  private — often  secret — bargain- 

*  Bureau  of  Corporations:  The  Tobacco  Industry,  Part  I,  pp.  255, 
298-302. 


[ 


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236 


AGRICULTURAL  COMMERCE 


ing,  the  grower  has  no  definite  price  index  as  a  basis  for  in- 
telligent judgment.    The  growers  of  the  leaf  tobacco  used  for 
other  purposes  than  cigar  manufacture  have  the  advantage  of 
numerous  organized  auction  markets  where  prices  are  pub- 
licly quoted.     There  is  no  single  or  small  group  of  southern 
tobacco  markets,  however,  which  stands  out  as  prominently  as 
Chicago  does  in  the  grain  and  livestock  trades ;  New  Orleans, 
New  York  and  Liverpool  in  the  cotton  trade ;  or  Boston  in 
the  wool  trade.     The  organization  of  the  American  Tobacco 
Company  and  its  subsidiary  manufacturing  and  exporting 
companies  has  moreover  at  times  restricted  the  freedom  of 
competition  to  some  extent,  for  it  naturally  reduced  the  num- 
ber of  independent  buyers.    The  decline  in  prices  during  the 
years  1899  to  1903  was  doubtless  due  in  part  to  the  great  in- 
crease in  the' crop  during  those  years,  but  among  the  growers 
there  was  a  widespread  feeling  that  it  was  largely  due  to  the 
dommant  position  of  the  tobacco  combination.     They  there- 
upon formed  growers'  associations  in  the  various  districts,^ 
the  members  of  which  refused  to  sell  their  crop  at  the  prevail- 
ing prices,  and  restricted  production.    Much  leaf  tobacco  was 
stored  in  warehouses  and  became  the  basis  for  advances  made 
by  New  York  as  well  as  local  banks.     The  total  annual  crop 
declined  from  816-  to  660,000,000  pounds  between  the  years 
1903  and  1904  and  did  not  again  reach  the  level  of  the  former 
year  until  1909.     The  effect  of  this  was  to  gradually  raise 
the  average  grower's  price  from  6.8  cents  per  pound  on  De- 
cember  1,  1903,  to  10.3  cents  on  December  1,  1908.^ 

The  price  effect  of  supply  is  exerted  largely  by  domestic 
leaf,  the  leaf  imports  from  abroad  being  mainly  non-com- 
petitive.     Foreign  wrapper  tobacco  and  other  foreign  leaf 
tobacco  when  mixed  or  packed  with  more  than  15  per  cent, 
of  wrapper  tobacco  is  obliged  to  pay  an  import  duty  of  $1  85 
per  pound  if  unstemmed  and  $2.50  per  pound  if  stemmed, 
^  Dark  Tobacco  Growers '  Association  of  Kentucky ;  Dark  Tobacco 
Growers    Association  of  Tennessee;  Burley  Tobacco  Growers^  Asso- 
ciation of  Kentucky;  Maryland  Tobacco  Growers'  Association;  Mu- 
tual Protective  Association  of  Bright  Tobacco  Growers  of  Virginia, 
JNortn  Carolina,  etc.  °     ^ 

^Estimates  of  U.  S.  Department  of  Agriculture. 


THE  LEAF  TOBACCO  TRADE 


237 


and  the  lowest  duties  on  foreign  filler  and  other  classes  of  leaf 
tobacco  range  from  35  to  50  cents  per  pound.^  The  influ- 
ence of  demand,  on  the  contrary,  is  international,  over  one- 
third  of  the  crop  being  annually  exported. 

Leaf  tobacco  prices,  more  so  than  those  of  most  other 
farm  staples,  also  vary  greatly  according  to  quality  and  use. 
As  was  shown  in  Table  No.  1  the  average  prices  of  cigar  leaf 
exceed  those  of  tobacco  used  for  other  purposes.  Cigar  wrap- 
pers, moreover,  sell  at  higher  prices  than  binders,  and  binders 
higher  than  fillers.  So,  likewise,  the  bright  yellow  types 
usually  sell  for  higher  prices  than  burley  leaf,  and  burley 
leaf  higher  than  the  dark  and  export  types.  While  much  wool, 
livestock,  cotton,  and  to  some  extent  even  grain,  is  not  graded 
until  after  it  is  sold  by  the  farmers,  the  tobacco  growers 
themselves  usually  grade  their  crop  before  selling  it. 

Local  hauling,  sJiipping  and  marleting  costs  affect  leaf 
tobacco  prices  and  grower's  profits  in  the  same  manner  that 
similar  costs  influence  the  tobacco  prices  or  grower's  profits 
of  other  farm  products.    Leaf  tobacco  being  an  intrinsically 
valuable  commodity,  however,  the  aggregate  influence  of  haul- 
ing and  shipping  costs  is  relatively  smaller  than  in  the  case 
of  commodities  such  as  grain,  hay  or  potatoes.     The  United 
States  Department  of  Agriculture  reports  the  average  costs 
of  hauling  from  the  farms  to  local  markets  or  shipping  points 
to  be  about  10  cents  per  100  pounds,  and  when  shipped  to 
the  larger  markets  by  rail  the  freight  charges  from  the  local 
shipping  points  usually  do  not  exceed  15  or  25  cents  per  100 
pounds.     Marketing  costs  including  commissions,  warehouse 
charges  and  other  costs  previously  mentioned  are,  on  the 
contrary,  a  relatively  important  item  in  leaf  tobacco  prices 
or  growers'  profits.^    When  the  leaf  tobacco  is  sold  in  hogs- 
heads, tierces  or  other  containers  the  cost  of  such  containers 
becomes  an  additional  item,  and  frequently  the  costs  incurred 
in  the  packing  house  which  stands  between  the  grower  and 
manufacturer  in  so  many  instances  affect  either  the  price  re- 

» Tariff  Act  of  Oct.  3,  1913,  Schedule  F.  ^    ^ 

'For  cost  comparisons  see  United  States  Industrial  Commission; 
Distribution  and  Marketing  of  Farm  Products,  vol.  vi,  pp.  310-319. 


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AGRICULTURAL  COMMERCE 


ceived  by  the  grower  or  that  paid  by  the  manufacturer.  The 
commercial  costs  are  lowest  when  the  manufacturer  purchases 
directly  from  the  grower,  and  highest  when  the  crop  is  mar- 
keted through  packers,  wholesale  dealers,  or  jobbers,  exporters 
or  other  middlemen,  each  of  whom  incurs  costs  and  demands 
a  profit  for  the  services  which  he  renders. 

The  manner  in  which  grower's  production  costs  affect  leaf 
tobacco  prices  and  grower's  profits  does  not  differ  essentially 
from  the  effect  of  such  costs  in  other  agricultural  trades,  and 
the  influence  of  general  factors  such  as  gold  production  is 
described  in  Chapter  XVII. 


BIBLIOGRAPHY 

Jacobstein,  M.    The  Tobacco  Industry  (1907). 
KiLLEBREW,  J.  B.,  and  Myrick,  H.     Tobacco  Leaf  (1906). 
Kn^LEBREW,  J.  P.     Tobacco  Districts  and  Types,  in  Circular  18 

of    Bureau    of    Statistics,    Department    of    Agriculture 

(1909). 
Tobacco  Report  (July  1,  1912),  Circular  38  of  Bureau  of 

Statistics,  Department  of  Agriculture   (1912). 
United  States  Bureau  of  Corporations:     The  Tobacco  Indus- 
try (1909),  Part  I,  chap.  1,  11-14. 
United   States  Bureau  of  Foreign   and  Domestic   Commerce: 

Annual  Commerce  and  Navigation  Report  (annual). 
United  States  Bureau  of  Statistics :    Production  and  Value  of 

Tobacco    Crop,    1910-1913,    Farmers'    Bulletin   No.    570 

(Dec.  27,  1913),  pp.  9-11. 

Tobacco  Crop  of  the  U.  S.,  1612-1911,  Circular  33  (191^. 

United  States  Industrial  Commission:     Distribution  of  Farm 

Products  (1901),  Vol.  6,  Part  8. 


t  ^ 


CHAPTER   XII 
THE  MAEKETING   OF  FBUIT 

The  fruit  trade  of  the  United  States  comprises  so  many 
varieties  of  fruit,  and  so  many  growing  districts,  markets  and 
branches  of  activity  that  space  forbids  the  discussion  of  many 
phases  of  this  trade.  Viewed  from  the  standpoint  of  the 
organization  of  commerce,  it  will  be  necessary  to  describe 
only  the  distinguishing  features  of  the  fruit  trade,  chief 
among  which  are  the  methods  of  marketing  the  crop  and  the 
unusual  amount  of  cooperation  which  has  been  developed 
among  fruit  growers.  Much  of  the  ensuing  discussion  applies 
equally  as  well  to  the  trade  in  vegetables  and  other  farm 
produce,  but  for  purposes  of  brevity  it  will  be  confined  to  the 
fruit  trade. 

The  Fruit-Grov7ing  Districts 

The  fruit  crop  is  commonly  divided  into  five  primary 
classes  or  groups:  (1)  orchard  fruits,  (2)  small  fruits,  (3) 
grapes,  (4)  citrus  fruits  and  (5)  non-citrus  tropical  and  sub- 
tropical fruits.  Of  each  there  is  a  large  number  of  varieties, 
and  most  of  them  are  produced  in  widely  separated  growing 

districts. 

Orcliard  Fruits.— By  far  the  largest  group  of  American 
fruits  consists  of  the  so-called  orchard  fruits— apples^  peaches 
and  nectarines,  pears,  plums  and  prunes,  cherries,  apricots, 
quinces  and  others  of  less  importance.  As  indicated  in  Map 
No.  XI  these  fruits  taken  as  a  whole  are  grown  in  many 
parts  of  the  country.  So  generally  are  they  produced  that 
the  census  returns  of  1909  showed  the  amazing  total  of  214,- 
600,000  bushels.  In  California,  New  York,  Michigan,  Penn- 
sylvania, Missouri,  Kentucky,  Iowa,  Ohio,  Virginia,  Tennes- 

239 


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240 


AGRICULTURAL  COMMERCE 


see,  North  Carolina,  Illinois,  Indiana,  West  Virginia,  Colo- 
rado, Arkansas,  and  Oregon  many  growers  make  a  special 
business  of  raising  orchard  fruits. 

The  orchards  yielding  the  140-  to  over  175,000,000  bushels 
of  apples  annually  grown  in  the  United  States  are  widely  scat- 
tered, but  three  chief  belts  are  discernible:  (a)  The  old-time 
"apple  belt''  which  has  for  many  years  produced  heavy  apple 
crops  extends  throughout  New  York,  New  England,  Pennsyl- 
vania, Ohio,  Indiana,  Kentucky,  Tennessee,  Michigan  and  the 
Virginias,  (b)  The  apple  orchards  of  trans-Mississippi  Val- 
ley belt,  including  chiefly  the  Ozark  territory  of  southern 
Missouri  and  northern  Arkansas,  southwestern  Iowa,  eastern 
Nebraska  and  Kansas,  are  newer  but  now  yield  heavy  crops, 
(c)  Still  more  recently  the  apple  orchards  of  the  Pacific 
Coast — California,  Oregon  and  Washington — have  shipped 
many  carloads  to  eastern  and  middle-western  markets ;  indeed 
few  apples  have  been  more  widely  advertised  than  those  of  the 
Hood  River  Valley  of  Oregon.  A  fourth  apple  district  is 
gradually  being  developed  in  the  Rocky  Mountain  states, 
Colorado,  Idaho,  Utah  and  Montana  already  shipping  appre- 
ciable, quantities  to  outside  markets. 

Peach  growing  is  somewhat  less  general,  but  is  likewise 
spreading  over  a  greater  area  than  in  the  past.  For  many 
years  the  commercial  crop  reaching  the  great  fruit  markets 
of  the  Middle  West  and  East  came  largely  from  three  dis- 
tricts, Georgia,  Michigan,  and  California,  but  it  is  noticeable 
that  many  peaches  have  in  recent  years  entered  the  trade  from 
the  orchards  of  Indiana,  Illinois,  New  York,  Ohio,  Washing- 
ton, Colorado,  Utah,  Arkansas,  Missouri,  Texas  and  from  all 
the  states  south  of  the  Ohio  and  Potomac  rivers.^ 

Small  Fruits.— The  country's  total  output  of  so-called 
small  fruits  comprised  426,500,000  quarts  in  the  census  year 
1909.     They  include  strawberries,  blackberries,  raspberries, 

*  Other  orchard  fruits  are  grown  chiefly  as  follows :  pears  in  Cal., 
N.  Y.,  Mich.,  N.  J.,  Pa.,  Ohio,  Md.,  Ore.  and  Wash. ;  plums  and  prunes 
in  Cal.,  Oregon,  Wash.,  N.  Y.,  Pa.  and  Mo. ;  cherries  in  Cal.,  Pa.,  Ind., 
Mich.,  Ohio,  Ore.,  Neb.,  Mo.,  111.,  Iowa  and  Wash.;  apricots  in  Cal.; 
quinces  in  N.  Y.,  Ohio,  Pa.  and  CaL 


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242 


AGKICULTURAL  COMMERCE 


cranberries,  currants,  gooseberries  and  other  varieties  of  ber- 
ries. Their  production  is  widely  scattered,  but  the  leading 
districts  are  in  New  Jersey,  New  York,  Massachusetts,  Michi- 
gan, California,  Maryland,  Ohio,  Missouri,  Pennsylvania, 
Delaware,  Tennessee  and  Washington. 

Grapes.— In  contrast  with  the  output  of  orchard  fruits 
which  increased  but  slowly  during  the  census  decade  1899  to 
1909,  and  that  of  small  fruits,  which  declined  somewhat,  the 
country's  grape  crop  advanced  from  1,301,-  to  2,571,000,000 
pounds.    California's  output  of  1,980,000,000  pounds  in  1909 
exceeded  the  grape  crop  of  the  entire  United  States  of  ten 
years  earlier,  and  in  the  same  year  253,000,000  pounds  were 
grown  in  New  York.    Though  vineyards  are  not  uncommon  in 
eastern  states  such  as  Pennsylvania,  New  Jersey,  Delaware, 
Maryland,  Virginia,  and  North  Carolina;  and  in  Illinois,  In- 
diana, Missouri  and  Iowa,  ninety-three  per  cent,  of  the  total 
commercial  crop  is  grown  in  but  four  regions:     (1)  Califor- 
nia, (2)  western  New  York,  (3)  southwestern  Michigan,  and 
(4)   northern  Ohio.     The  use  of  grapes  for  the  making  of 
grape  juice   and   raisins,   the   irrigation   of  large   areas   in 
California  and  the  development  of  large  eastern  markets  for 
fresh  grapes  have  nearly  doubled  the  crop  during  the  last 
decade. 

Citrus  Fruits.— The  fruits  known  as  "citrus"  to  distin- 
guish them  from  "deciduous"  fruits,  include  principally  or- 
anges, lemons  and  grapefruit.^  Their  production  in  the 
United  States  is  confined  very  largely  to  California  and  Flor- 
ida, and  during  the  decade  1899  to  1909  the  annual  crop 
advanced  from  7-  to  23,500,000  boxes.^ 

Non-citrous  Tropical  and  Sub-tropical  Fruits.— Though 
the  citrus  fruits  constitute  the  main  group  of  tropical  and 
sub-tropical  fruits  grown  in  the  United  States,  various  non- 
citrus  fruits  of  that  type  are  grown.     Figs  and  olives  are 

*  Most  of  the  orchard  fruits  are  deciduous  and  are  so-called  be- 
cause the  trees  producing  them  shed  their  leaves  each  season. 

'  1909:  Domestic  orange  crop— total  19,487,481  boxes:  California 
14,456,180,  and  Florida  4,852,967.  Lemon  crop— total  2  770  313 
boxes:  California  2,756,221,  and  Florida  12,367.  Grape  fruit— total 
1,189,250  boxes:    California  122,515,  and  Florida  1,061,000 


THE  MARKETING  OF  FRUIT 


243 


grown  mainly  in  California ;  pineapples,  mangoes  and  bana- 
nas in  Florida ;  guavas  and  persimmons  in  Florida  and  Cali- 
fornia. Small  quantities  of  loquates,  pomegranates  and  dates 
are  also  included  in  this  group  of  fruits. 

Importation  of  Fruits 

In  addition  to  the  great  quantities  of  domestic  fruits 
grown  in  the  United  States,  foreign  fruits  and  nuts  to  the 
value  of  from  $27,-  to  $41,500,000  are  annually  imported 
from  abroad,  and  smaller  quantities  from  the  country's  island 
possessions.     The  imported  fruits  consist  mostly  of  tropical 
and  sub-tropical  varieties  not  grown  on  a  sufficiently  large 
scale  in  the  United  States.    The  largest  item  in  the  foreign 
trade  consists  of  bananas  imported  from  Central  America, 
the  West  Indies  and  Colombia.    Sixty  per  cent,  or  more  are 
imported  by  the  United  Fruit  Company,  a  large  commercial 
concern  which  cultivates  nearly  222,000  acres  of  fruit  lands 
in  the  tropics  and  buys  additional  fruit  from  other  growers ; 
which  operates  over  eighty  vessels  to  carry  fruit  for  its  own 
account,  general  freight  for  the  public,  and  many  passengers ; 
and  which  operates  ice  plants,  hotels  and  hospitals,  and  in 
many  ways  is  a  prime  factor  in  the  commerce  of  the  West 
India  and  Caribbean  countries.^     The  bananas  and  other 
fruits  which  it  imports  are  mostly  sold  on  the  large  auction 
markets  of  the  Atlantic  and  Gulf  ports  of  the  United  States 
and  thence  distributed  throughout  the  country.    Other  foreign 
fruits  include  currants  imported  mainly  from  Greece,  Asiatic 
Turkey  and  Italy;  dates  and  figs  from  Asiatic  Turkey  and 
other  countries  in  Asia;  grapes  from  Spain;  lemons  from 
.  Italy ;  olives  from  Spain  and  Greece ;  oranges  from  the  West 
*  Indies,  Italy,  Mexico,  Japan  and  England ;  pineapples  from 
Cuba;  and  raisins  and  other  dried  grapes  from  Asiatic  Tur- 
key and  Spain. 

*  Proceedings  of  House  Committee  on  the  Merchant  Marine  and 
Fisheries  in  the  Investigation  of  Shipping  Combinations  (1912),  vol. 
i,  pp.  711-731. 


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244  AGRICULTURAL  COMMERCE 


Preparation  for  Market 

Fruit  Grading.— As  in  the  case  of  other  farm  products 
fruit  must  be  graded  in  order  to  be  properly  marketed.  The 
grading  requires  careful  sorting  of  the  fruit  with  three  chief 
factors  in  mind:  (1)  uniformity,  (2)  relative  freedom  from 
injury  resulting  from  handling,  picking,  storm,  disease,  in- 
sects or  otherwise,  and  (3)  agreement  with  the  brand  marks 
on  the  fruit  package.  Uniformity,  the  principal  grading  as 
well  as  selling  consideration,  refers  mainly  to  size,  color,  and 
shape,  which  together  represent  appearance.  It  is  a  well- 
known  market  axiom  that  an  apple  of  good  appearance  al- 
though of  relatively  inferior  taste  and  quality  is  more  easily 
sold  in  the  large  wholesale  markets  than  one  of  superior  taste 
and  quality  but  inferior  appearance. 

Fruit  is  sometimes  regraded  and  repacked  at  the  whole- 
sale markets  by  dealers  or  commissionmen,  but  as  in  the  case 
of  leaf  tobacco  it  is  usually  graded  locally.  It  may  be  graded 
either  by  the  local  dealers  who  buy  much  fruit  from  the 
growers,  or  by  the  growers  before  they  dispose  of  their  crop. 
In  the  latter  case  it  may  be  graded  by  the  individual  growers 
or  by  growers'  cooperative  associations,  the  tendency  in  many 
fruit  districts  being  toward  direct  action  by  such  associations 
or  by  the  individual  growers  subject  to  association  rules  and 
inspection. 

Though  the  formation  of  cooperative  growers'  associations 
leads  to  a  degree  of  uniformity  within  given  fruit  districts, 
throughout  the  country  as  a  whole  there  is  great  lack  of  uni- 
formity in  fruit  grading.  Many  apple  shippers  for  example 
sort  their  crop  into  three  grades— selects,  firsts  and  culls; 
but  others  grade  them  into  four  groups— selects,  firsts,  sec- 
onds and  culls.  Moreover,  throughout  the  country  as  a  whole 
there  has  been  no  general  understanding  as  to  the  exact  mean- 
ing of  the  various  grades  of  fruit.  More  has  in  this  respect 
been  done  in  the  grading  of  apples  than  that  of  other  fruits, 
for  the  National  Apple  Shippers'  Association  has  since  1900 
endeavored   to   enforce   upon    its   members   two    "standard' 


ij> 


THE  MARKETING  OF  FRUIT 


245 


grades  (Nos.  1  and  2),  and  in  1912  Congress  enacted  a  stat- 
ute, effective  July  1,  1913,  fixing  three  "standard"  grades  for 
apples  shipped  in  interstate  commerce.  All  of  the  standard 
grades  comprise  well-grown,  hand-picked  apples  of  normal 
shape,  of  one  variety  and  practically  free  from  defects,  the 
total  in  a  barrel  being  not  more  than  10  per  cent,  below  the 
specifications  of  the  law,^  and  other  apples  may  not  be  shipped 
under  standard  grades.  The  difference  between  the  three 
standard  grades  lies  mainly  in  the  size  of  the  apples.  No.  1 
having  a  minimum  diameter  of  2^  inches.  No.  2  not  less  than 
2i  and  No.  3  not  less  than  2  inches. 

Fruit  Packing.— The  grading  of  fruit  is  inseparably  con- 
nected with  its  packing.  One  of  the  abuses  of  the  trade  has 
been  the  occasional  false  packing  of  fruit  by  placing  different 
grades  in  the  same  package,  attaching  misleading  brands  or 
marks,  using  undersized  packages  or  failing  to  properly  fill 
the  packages.  There  has  also  been,  and  to  some  extent  still 
is,  lack  of  uniformity  in  the  kind  and  capacity  of  fruit  pack- 
ages used. 

Much  improvement  has  been  made  in  the  matter  of  pack- 
ing by  the  voluntary  action  of  growers,  growers'  associations, 
and  dealers.  Fruit  shipped  from  given  districts  is  now  com- 
monly packed  in  standard  packages,  there  being  standard  ap- 
ple barrels  and  boxes,  berry  boxes  and  crates,  grape  baskets, 
Georgia,  Michigan  and  Delaware  peach  baskets,  etc.^  Stat- 
utes have  been  enacted  in  many  states,  prescribing  the  mini- 
mum dimension  of  the  packages,  and  penalizing  underfilling 
and  misbranding.  The  federal  apple  grading  law  of  1912, 
likewise,  prescribes  the  standard  dimensions  of  an  apple  bar- 
rel, requires  branding  according  to  the  actual  grade  of  the 
contents  and  penalizes  misbranding.^ 

The  packages  of  fruit  which  are  honestly^  graded  and 
packed  and  of  superior  quality,  are  usually  marked  with  the 

*Act  of  Aug.  3,  1912. 

»r.  A.  Waugh:    Fruit  Harvesting,  Storing  and  Marketing,  pp. 

73-91. 

'Standard  dimensions:  length  of  stave  28^  inches;   diameter  of 

head  17S  inches;  distance  between  26  in.;  circumference  of  bulge  64 
in.  (outside) ;  cubical  contents  7,056  cubic  inches. 


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AGKICUXTUKAL  COMMERCE 


I'  *> 


trademarks  or  brands  of  individual  growers  or  shippers  or  of 
growers'  associations.  Many  such  marks  are  well  known  in 
the  large  wholesale  markets  and  constitute  valuable  trade 
assets. 

Pre-cooling.— Perishable  fruit  destined  to  distant  markets 
is  frequently  pre-cooled,  i.  e.,  it  is  cooled  before  shipment  so 
as  to  reduce  the  cost  of  refrigeration  and  the  cost  of  decay 
en  route,  cause  the  fruit  to  arrive  in  better  condition,  and  per- 
mit it  to  ripen  to  a  greater  degree  before  being  picked.  The 
Interstate  Commerce  Commission  has  decided  that  pre-cooling 
may  be  done  either  by  the  railroad  or  the  shippers  and  that 
when  done  by  the  former  the  maximum  charge  for  pre-cooling 
must  not  be  unreasonable.^ 

Shipping  Fkuit  to  Market 

Although  some  fruit  may  in  the  future  be  shipped  in 
refrigeration  vessels  from  the  Pacific  Coast  to  eastern  markets 
through  the  Panama  Canal,  fresh  fruit  transportation  has 
thus  far  been  largely  a  rail  movement,  for  the  perishable 
fruits,  especially,  require  rapid  shipment  so  as  to  avoid  decay 
en  route. 

Refrigeration  Car  Service.— The  rapidity  of  movement  as 
well  as  the  required  temperature  for  shipping  perishable  fruits 
is  provided  by  the  refrigeration  car  service  of  the  rail  carriers. 
Some  of  the  refrigeration  cars  are  owned  by  the  carriers  and 
others  by  private  car  companies,  who  receive  from  J  to  1  cent 
per  mile  from  the  railroads  for  the  use  of  their  cars.  The 
icing  of  the  cars  is  likewise  performed  in  some  instances  by 
the  railroads  and  in  others  by  the  private  car  companies.  In 
either  event  the  railroad  company,  in  addition  to  the  regular 
freight  rate,  collects  an  icing  charge  from  the  shipper,  which 
it  retains  or  turns  over  to  the  private  car  company  according 
to  whether  the  one  or  the  other  performs  the  refrigeration 
service. 

As  stated  above  the  fruit  may  be  pre-cooled  before  ship- 

.  ^23  I.  C.  C.  Rep.  267  (Apr.  8,  1912)— $7.50  fixed  as  reasonable 
railroad  pre-caohng  charge.    Appealed  to  courts. 


THE  MARKETING  OF  FRUIT 


247 


ment,  but  if  shipped  long  distances  the  cars  must  be  re-iced 
en  route.  In  order  to  expedite  the  service  icing  stations  are 
therefore  erected  at  various  points  on  the  rail  lines,  agents 
are  placed  in  charge,  many  cars  are  concentrated  and  ''parked" 
in  the  growing  districts  shortly  before  the  shipping  season 
begins  so  as  to  be  available  when  required,  and  the  loaded  cars 
are  rushed  to  market  as  rapidly  as  possible,  frequently  in  spe- 
cial trains.  It  is  a  common  practice  to  ship  fruit  eastward 
or  northward  from  the  growing  districts  without  knowledge  as 
to  its  final  destination,  the  cars  being  held  at  certain  transfer 
and  reconsignment  points  for  final  shipping  orders.  It  is 
highly  important  that  markets  should  not  be  overstocked,  and 
the  shippers,  distributors,  or  growers'  exchanges  therefore 
prefer  to  keep  the  cars  which  are  traveling  across  the  country 
under  their  control  until  they  ascertain  existing  market  condi- 
tions. 

Owing  to  the  nature  of  the  service  rendered  and  the  great 
distances  between  many  of  the  growing  sections  and  markets, 
the  transportation  of  fruit  is  expensive  and  usually  affects 
seriously  either  the  prices  received  or  the  growers'  profits. 
The  railroad  freight  rates  on  peaches  shipped  to  Philadelphia 
from  Sacramento,  California,  are  $299,  and  from  Atlanta, 
Georgia,  $171  per  carload  of  26,000  and  22,500  pounds  re- 
spectively, and  the  refrigeration  charges  to  Philadelphia  from 
the  same  points  are  usually  about  $82^  and  $59  respec- 
tively. 

The  direct  and  important  connection  between  the  refrig- 
eration car  service  and  the  fresh  fruit  trade,  the  relation  be- 
tween the  railroads  and  the  private  refrigeration  car  compa- 
nies, the  uses  and  past  abuses  of  these  companies,  and  the 
present  control  of  the  icing  charges  by  the  Interstate  Com- 
merce Commission,  have  been  fully  discussed  elsewhere.^ 

Fruit  Markets.— There  are  two  quite  distinct  classes  of 
fruit  markets  in  the  United  States:  the  "direct,  special,  or 
retail  market,"  and  "the  indirect,  general,  or  wholesale  mar- 


*  $87.50  if  iced  during  loading. 
*See  E.  E.  Johnson  and  G.  G.  Huebner: 
Bates,  voL  i,  chap.  xii. 


Bailroad  Traffic  and 


I: 


I 


)!■ 


248 


AGRICULTURAL  COMMERCE 


I  ! 


ket/'i    These  markets  differ  in  many  respects:    (1)  Special 
markets  are  local  in  character  and  are  located  everywhere 
throughout  the  country,  especially  in  cities  situated  near  the 
fruit  orchards.  General  or  wholesale  fruit  markets  on  the  con- 
trary are  located  chiefly  in  the  great  cities  and  centers  of 
population,  and  receive  fruit  not  only  from  nearby  growers 
but  from  distant  parts  of  the  United  States  and  foreign  coun- 
tries.    (2)  Competition  in  the  special  markets  is  local  while 
in  the  general  markets  it  is  national  and  world-wide.     (3) 
The  special  and  general  fruit  markets  differ  also  in  that  the 
former  handle  fruit  in   small   quantities,  while   the  latter 
handle  it  in  carload  and  vessel  load  lots.     (4)  The  profits  per 
bushel,  quart  or  package  in  the  special  markets  are  usually 
large  as  compared  with  those  in  the  general  markets.     (5) 
In  the  former  the  growers  usually  sell  either  directly  to  con- 
sumers or  to  retail  stores,  while  in  the  latter  they  usually  sell  to 
middlemen  and  seldom  direct  to  consumers.     (6)  The  former 
accept  an  almost  unlimited  number  of  varieties,  while  the 
latter  confine  themselves  largely  to  a  smaller  number  of 
standard,  well-known  varieties.      (7)    In  contrast  with  the 
special  markets  which  pay  as  much  attention  to  quality  as  to 
appearance,  the  general  markets  rely  more  largely  upon  the 
appearance  of  the  fruit.    (8)  The  growers  with  a  special  mar- 
ket can  largely  disregard  shipping  quality,  while  those  ship- 
ping to  the  general  markets  must  so  far  as  possible  select  va- 
rieties which  will  bear  shipment  and  rough  handling.     (9) 
"The  wholesale  market  requires  a  standard  package,  while 
almost  any  neat,  clean  package  may  be  used  in  the  direct 
market,  and  sometimes  fruit  is  delivered  in  bulk  from  sacks, 
boxes,  barrels  or  baskets,  without  any  package.    In  the  whole- 
sale market  a  gift  package   is  practically  always  required, 
while  the  man  who  has  private  customers  frequently  has  his 
boxes  or  baskets  returned  to  him."  ^     (lO)  In  contrast  with 
the  special  or  private  markets  which  frequently  pay  large 
prices  for  fruit  out  of  season,  the  general  markets  are  usually 
available  only  for  fruits  in  season. 

*  F.  A.  Waugh,  pp.  4-8. 
'/feirf.,  p.  6. 


THE  MARKETING  OF  FRUIT 


249 


Although  particular  growers  and  small  crop-growing  dis- 
tricts often  ship  their  entire  crop  to  the  same  wholesale  market 
year  after  year,  fruit  is  more  commonly  distributed  in  strict 
accord  with  market  conditions.  Thus  California  fruit  has  the 
advantage  in  nearby  western  markets,  but  thousands  of  car- 
loads are  shipped  to  the  large  cities  of  the  trans-Mississippi 
Valley,  to  Chicago,  St.  Louis,  Milwaukee  and  all  the  large 
cities  of  the  Middle  West,  and  to  New  York,  Boston,  Phila- 
delphia, Baltimore,  Washington,  Pittsburgh,  Buffalo  and 
other  eastern  markets.  Each  large  district  supplies  the  near- 
by markets  during  its  fruit  season,  but  usually  ships  to  many 
other  markets  throughout  the  country.  The  growers  of  the 
Atlantic  seaboard,  however,  ship  relatively  little  fruit  west- 
ward because  they  are  located  near  the  huge  eastern  whole- 
sale and  retail  markets  which  readily  accept  enormous  quan- 
tities of  fruit. 

Fruit  Exports. — Some  American  fruit  is  exported  to  for- 
eign markets.  Appreciable  quantities  of  dried  apples  are 
shipped  to  Germany  and  Holland;  green  and  ripe  apples  to 
Great  Britain,  Canada  and  Germany;  dried  apricots  to  Great 
Britain,  Germany,  France,  Holland  and  Belgium ;  oranges  to 
Canada;  prunes  to  Germany,  Holland,  France,  Canada  and 
Great  Britain;  raisins  to  Canada,  New  Zealand  and  Great 
Britain ;  and  canned  fruits  of  various  kinds  to  Great  Britain 
and  Canada,  and  smaller  quantities  to  numerous  other  foreign 
countries.  The  total  value  of  all  the  fruits  and  nuts  annually 
exported  from  the  United  States  ranges  from  $15,-  to  $24,- 

500,000. 

Fruit  Wajehouses.— Cold  storage  warehouses  in  which 
fruit  may  be  stored  have  been  erected  both  at  some  of  the 
points  of  shipment  and  at  the  large  wholesale  markets.  The 
former,  many  of  which  are  operated  by  cooperative  growers' 
associations,  are  mainly  used  for  packing  and  pre-cooling  fruit 
for  shipment,  the  total  amount  of  fruit  stored  in  them  for 
sale  in  the  future,  except  at  a  few  points,  being  relatively 
small.  The  large  cold  storage  warehouses  at  the  central  mar- 
kets are  operated  by  private  warehousemen  and  railroads,  and 
Hre  used  for  the  storage  of  many  kinds  of  commodities.    They 


I   I,. 


)  \ 


i  I 


W 


250 


AGRICULTITKAL  COMMERCE 


act  as  great  reservoirs  which  equalize  the  supply  of  fruit 
throughout  the  year,  especially  between  harvesting  seasons. 
The  warehousemen  act  as  trustees  for  jobbers,  commission- 
men,  growers,  or  any  of  the  marketing  agencies  mentioned 
below;  they  frequently  finance  the  operations  and  sometimes 
invest  in  the  corporations  of  their  clients;  and  many  of  them 
deal  in  fruit  jointly  with  their  clients  or  entirely  on  their 
own  account.^ 

Methods  of  Marketing  Fruit 

Distribution  in  Wholesale  Maxkets.— The  sale  of  fruit  in 
the  special  or  retail  markets  by  growers  to  consumers  or  retail 
concerns  is  a  direct  sale  which  requires  no  detailed  descrip- 
tion. The  great  fruit-growing  districts,  however,  are  largely 
dependent  upon  the  large  wholesale  markets  where  they  dis- 
pose of  their  crop  in  many  different  ways.  In  speaking  of 
the  sale  of  fruit  by  growers  it  is  of  course  understood  that 
they  may  act  either  individually  or  jointly  through  a  coopera- 
tive association  or  exchange. 

1.  Many  fruit  growers  sell  their  fruit  to  local  dealers 
under  any  one  of  various  kinds  of  contracts.^  They  may  sell 
the  orchard  as  a  whole,  the  dealers  agreeing  to  accept  the  fruit 
on  the  trees,  pay  a  lump  sum  for  the  crop,  and  perform  the 
necessary  picking,  sorting,  grading,  packing  and  hauling. 
They  may  sell  their  fruit  "on  the  table"  in  which  case  the 
growers  do  the  picking  and  hauling  while  the  dealers  furnish 
the  packages,  perform  the  sorting,  grading  and  packing,  and 
pay  an  agreed  amount  per  barrel,  box  or  other  unit.  The 
growers  may  sell  "f.o.b.  loading  station,"  i.  e.,  they  may  re- 
ceive so  much  per  barrel,  box,  etc.,  delivered  at  the  shipping 
station,  all  intermediate  work  being  done  by  them.  They 
may  also  sell  their  crop  for  delivery  at  the  dealer's  packing 
warehouse,  at  so  much  per  barrel  or  other  measure,  the  dealer 
preferring  to  prepare  the  fruit  for  final  shipment  to  the  whole- 

*  See  G.  H.  Powell :   Cooperation  in  Agriculture,  pp.  203-204. 
*8ee  Report  of  Secretary  of  Missouri  State  Board  of  Horticul- 
ture (1912),  pp.  19-20. 


THE  MARKETING  OF  FRUIT 


251 


sale  markets.  Local  dealers  in  turn  sell  the  fruit  directly  to 
wholesale  jobbers,  distributors,  or  in  some  cases  to  retailers, 
and  indirectly  through  commissionmen  and  auction  compa- 


nies. 


2.  Fruit  growers  may  sell  to  so-called  "fruit  distribu- 
tors," or  "marketing  corporations."  These  concerns  which 
may  be  located  either  in  the  growing  districts  or  at  the  whole- 
sale markets  usually  act  as  brokers.  They  usually  sell  direct 
to  wholesale  jobbers  for  cash  f .o.b.  or  subject  to  inspection  on 
arrival,  through  auction  companies,  or  in  any  other  manner, 
and  receive  a  brokerage  charge  of  from  5  to  10  per  cent,  on 
the  gross  sales.  Some  of  them  also  buy  fruit  from  the  growers 
on  their  own  account,  thereby  acting  as  dealers.  One  of  the 
largest  distributing  concerns  is  the  "California  Fruit  Distribu- 
tors" which  handles  about  75  per  cent,  of  the  entire  decidu- 
ous fruit  shipments  of  California.^ 

3.  Much  fruit  is  sold  by  the  growers  direct  to  wholesale 
jobbers.  These  concerns  obtain  their  supply  in  many  different 
ways,  for  in  addition  to  the  fruit  purchased  from  the  growers 
by  mail  orders  or  traveling  solicitors,  they  buy  through  com- 
missionmen and  auction  companies  or  from  local  dealers  and 
distributing  concerns  and  local  dealers  sometimes  act  as 
brokers  for  them.  The  wholesale  jobbers  in  turn  sell 
most  of  their  supply  to  retail  grocery  stores,  retail  fruit 
stores  and  stands,  fruit  vendors  and  hucksters,  and  gen- 
erally to  the  retail  trade.  They  also  place  much  fruit  in 
storage,  gradually  disposing  of  it  as  the  retailers  find  a 

market. 

4.  Much  fruit  is  sold  by  growers  and  local  buyers  through 
central  commissionmen.  Indeed,  the  fruit  trade  was  for  many 
years  closely  dependent  upon  the  commission  houses,  and  al- 
though the  tendency  is  to  reduce  the  number  of  middlemen 
the  commission  house  continues  to  be  an  important  link  in 
the  fruit  marketing  machinery.  The  practice  of  many  local 
shippers  is  to  consign  their  fruit  to  the  commissionmen  who 

»F.  B.  McKevitt:  Marketing  of  Fruit  by  California  Fruit  Dis- 
tributors, Proceedings  of  38th  Fruit  Growers*  Convention  of  Cali- 
fomia  (1910),  pp.  53-60. 


252 


AGRICULTURAL  COMMERCE 


sell  it  direct  to  retail  stores,  vendors,  hotels  and  other  retail 
establishments,  and  if  necessary  to  wholesale  jobbers,  or 
through  auction  companies.  They  receive  from  5  to  10  per 
cent,  on  the  gross  sales  as  a  commission  for  their  services,  and 
after  deducting  freight,  refrigeration,  drayage  and  any  other 
shipping  costs  which  may  have  been  incurred,  remit  the  bal- 
ance to  the  local  shipper.  Some  commissionmen  taking  ad- 
vantage of  the  distance  which  separates  them  from  the  local 
shippers,  have  at  times  stooped  to  dishonest  practices,  and 
although  the  dishonest  concerns  doubtless  are  the  exception 
to  the  general  rule,  the  resulting  distrust  has  done  much  to 
encourage  the  rise  of  jobbing  houses,  auction  houses,  growers* 
cooperative  exchanges  and  other  more  direct  means  of  market- 
ing. 

5.  Some  fruit  is  sold  by  growers  and  other  local  shippers 
through  fruit  brokers,  who  differ  from  the  commissionmen 
chiefly  in  that  they  usually  sell  to  the  wholesale  trade.  They 
usually  solicit  orders  from  wholesale  jobbers  and  then  se- 
cure the  required  amount  of  fruit  from  growers  or  local 
buyers,  receiving  a  brokerage  fee  of  from  3  to  5  per  cent, 
on  the  gross  sales,  or  of  agreed  amounts  per  barrel,  box 
or  other  package.  Some  of  them  also  act  as  jobbers, 
speculating  in  the  fruit  which  they  handle;  and  they  en- 
deavor at  times  to  distribute  the  surplus  stock  of  the  large 
markets  among  the  smaller  markets  of  the  surrounding  com- 
munity.^ 

6.  Auction  companies  have  been  formed  at  many  large 
markets  and  at  some  local  shipping  points  for  the  public  sale 
of  fruit  and  produce  to  the  highest  bidder.  Like  the  com- 
mission concerns  the  auction  companies  accept  consignments 
of  fruit  from  growers,  local  dealers  or  others,  but  they  differ 
in  that  while  the  former  sell  privately  to  a  relatively  small 
number  of  buyers,  the  auction  concerns  sell  to  a  large  num- 
ber at  public  sales,  receiving  from  |  to  5  per  cent,  on  the  gross 
sales  for  their  services.  The  stockholders  of  the  auction  com- 
panies in  some  instances  are  the  jobbers  and  other  members 
of  the  trade,  and  some  of  them  have  not  provided  the  open 

*G.  H.  PoweU,  p.  200. 


THE  MARKETING  OF  FRUIT 


253 


and  unrestricted  markets  which  the  auction  system  usually 
provides.  "The  auction  company  may  also  be  a  dealer  in  the 
products  which  it  sells  for  its  patrons.  It  may  be  engaged, 
either  directly  or  indirectly,  in  financing  its  clients,  in  han- 
dling the  products  on  joint  account  with  its  patrons,  or  in 
the  purchase  of  products  to  be  sold  in  competition  with  those 
of  its  clients."  ^ 

7.  Though  the  bulk  of  the  country's  fruit  sold  in  the 
large  wholesale  markets  is  handled  through  the  various  agen- 
cies mentioned  above,  some  of  it  is  sold  in  these  markets 
directly  by  the  growers.  In  well-organized  fruit-growing  re- 
gions the  growers  sometimes  form  cooperative  selling  ex- 
changes, such  as  the  California  (Citrus)  Fruit  Growers'  Ex- 
change, which  have  salesmen  at  the  large  markets  who  keep 
the  growers  advised  as  to  the  state  of  the  market  and  sell  their 
fruit  to  wholesale  or  retail  buyers  or  through  auction  com- 
panies, thus  dispensing  with  the  commissionmen  and  brokers 
and  sometimes  with  the  jobber  and  auction  companies.  In 
the  great  eastern  and  middle-western  fruit  markets  the  efforts 
of  these  salesmen  do  not  extend  beyond  the  wholesale  and  re- 
tail buyers.  In  cities  near  the  growing  districts,  however, 
some  of  the  cooperative  associations,  when  possible,  sell  direct 

to  consumers. 

Some  individual  growers  also  sell  their  fruit  to  retailers 
without  the  medium  of  commissionmen,  jobber  or  other  mid- 
dleman. Those  located  near  a  large  market  can  in  many  in- 
stances readily  sell  some  of  their  crop  in  this  way,  but  it  is 
at  times  done  also  by  growers  located  at  a  distance.  They  may 
sell  freely  to  all  bidders  or  under  exclusive  contracts,  they 
may  sell  it  f.o.b.  at  point  of  shipment,  for  delivery  at  des- 
tination, or  for  delivery  at  retailer's  premises ;  and  they  may 
arrange  to  have  the  retailer  handle  the  fruit  on  his  own  ac- 
count or  on  a  commission  basis.  A  grower  far  away  as  Mon- 
tana regularly  stores  some  of  his  apples  in  eastern  cold  storage 
warehouses,  from  which  they  are  delivered  each  day  by  a 
transfer  or  drayman  to  retailers  who  receive  from  20  to  30 

*  Proceedings  of  New  Jersey  State  Horticultural  Society  (1912), 
p.  70. 


254 


AGRICULTURAL  COMMERCE 


" 


per  cent,  on  the  retail  sales  for  their  services  as  retail  sales- 
men.^ 

On  the  whole  relatively  little  fruit  is  as  yet  sold  directly 
by  growers  to  retailers  at  the  large  general  fruit  markets,  the 
great  bulk  passing  through  the  regular  trade  agencies  men- 
tioned above.  Though  serious  abuses  -have  at  times  arisen  most 
of  these  agencies  are,  even  by  some  of  the  exponents  of  growers' 
cooperation,  regarded  as  "men  of  integrity,  business  energy 
and  resourcefulness,  and  as  equal  in  these  respects  to  any 
other  class  of  men  who  deal  in  the  products  of  the  soil."  ^ 
It  should  be  noted  that  the  various  agencies  which  have  been 
discussed  separately,  frequently  overlap — commissionmen, 
brokers  and  auction  companies,  for  example,  may  act  as  job- 
bers, jobbers  may  handle  some  business  on  consignment,  and 
local  dealers  may  act  as  brokers. 

Eetailing  of  Fruit. — Fruit  differs  from  the  farm  products 
previously  discussed  in  that  a  larger  portion  of  the  crop  is 
retailed  to  consumers.  (1)  A  large  proportion  of  the  fruit 
crop  is  retailed  by  general  grocery  stores  operating  individu- 
ally or  in  chains,  by  special  fruit  and  produce  stores  or  stands, 
by  fruit  vendors  and  hucksters  and  other  retail  dealers  who 
obtain  their  supply  from  the  wholesale  markets  or  direct  from 
fruit  growers. 

(2)  Consumers  purchasing  in  bulk  sometimes  purchase 
from  certain  wholesale  dealers  or  commissionmen  who  do  a 
retail  as  well  as  a  wholesale  business. 

(3)  Growers  located  near  the  retail  markets  frequently 
retail  their  fruit,  vegetables  and  other  produce  to  the  con- 
sumers. 

Fruit  retailers  reach  the  consumers  in  numerous  ways. 
They  may  dispose  of  their  fruit  at  private  stores  or  stands, 
directly  from  railroad  cars,  at  consumers'  premises,  or  at  pub- 
lic or  municipal  markets.  The  latter  are  particularly  con- 
venient for  growers  who  desire  to  retail  in  large  cities.^    At 

^Annual  Report  of  Montana  Horticultural  Society  (1912),  pp. 
47-48. 

« G.  H.  Powell,  p.  205. 
■iS^ee  pp.  23,  24. 


^ 


:w.'« 


THE  MARKETING  OF  FRUIT 


255 


a  limited  number  of  municipal  markets  a  wholesale  as  well 
as  a  retail  trade  in  fruit  and  produce  is  conducted,  but  most 
of  them  are  primarily  retail  markets. 


Fruit  Growees'  Cooperative  Associations 

In  no  other  branch  of  farming  industry  is  there  so  much 
cooperation  among  growers  as  in  the  fruit  and  vegetable  in- 
dustries. One  of  the  conditions  which  has  encouraged  this 
cooperation  is  that  many  fruit-growing  districts  have  been 
confronted  by  unusual  difficulties  in  the  shipping  and  mar- 
keting of  their  crops.  The  chief  reason,  for  example,  why 
cooperation  was  established  at  an  early  date  in  the  Pacific 
and  far-western  districts  was  the  difficulty  of  profitably  sell- 
ing in  distant  markets.  Cooperation  among  fruit  growers  is 
also  encouraged  by  the  geographical  compactness  of  many 
of  the  growing  districts,  by  the  similarity  of  the  fruit  grown 
in  a  given  district,  by  the  successful  education  of  many  grow- 
ers in  the  trade  possibilities  of  cooperation,  and  in  some 
regions  by  the  precedent  of  cooperative  irrigation. 

The  cooperative  associations  have  been  confronted  by 
numerous  obstacles  as  a  result  of  which  many  have  not  been 
successful.  The  individuality  and  distrust  of  the  growers 
which  in  many  cases  is  broken  down  only  by  the  force  of 
necessity,  management  by  impracticable  and  low-salaried  man- 
agers, organization  in  times  when  the  growers  were  prosper- 
ous and  did  not  feel  the  effects  of  low  pric-s,  unfair  demands 
by  members  as  to  prices  and  grading,  the  adoption  of  unsuc- 
cessful forms  of  organization  and  methods  of  cooperation,  the 
production  of  inferior  fruit,  the  disloyalty  of  members,  and 
the  attacks  and  opposition  on  the  part  of  private  buyers,  have 
caused  the  downfall  of  numerous  cooperative  ventures.  Many 
others,  however,  have  been  successfully  organized  and  are  in 
practical  operation. 

The  cooperative  associations  are  variously  organized,  some 
of  them  being  organized  as  joint-stock  companies  with  dis- 
tribution of  profits  on  a  stock  basis  and  others  as  simplp 


256 


AGRICULTUKAL  COMMERCE 


non-profit  associations  operated  on  a  cost  basis.    The  voting 
power  of  the  shareholders  is  likewise  arranged  in  different 
ways — on  the  basis  of  the  amount  of  stock  held,  the  acreage 
planted,  the  probable  crop,  or  the  crop  of  the  preceding  year. 
Fruit  growers  cooperate  in  many  different  lines  of  activity. 
As  was  previously  mentioned  some  of  them  cooperate  in  the 
shipping  and  marketing  of  fruit,  selling  their  crops  either 
through  regular  trade  agencies  or  through  their  own  sales- 
men.    The   California    (Citrus)    Fruit   Growers'   Exchange, 
which  is  an  instance  of  successful  and  extensive  cooperative 
marketing,  has  a  threefold  organization:     (1)  Locally  it  is 
based  upon  115  local  associations,  each  comprising  from  40  to 
200  growers  and  about  500  acres  of  orange  and  lemon  groves. 
Each  handles  the  fruit  of  its  members  on  a  cost  basis,  either 
for  its  individual  members  separately  or  by  pooling  it  each 
month  or  season.     (2)  The  local  associations  are  banded  to- 
gether in  17  district  exchanges,  which  are  also  operated  on 
a  non-profit  basis,  and  act  as  district  clearing  houses.    They 
order  cars  for  the  local  packing  houses,  keep  a  record  of  the 
cars  shipped  by  each  local  association,  keep  them  posted  with 
authentic  trade  information,  and  return  to  them  the  proceeds 
of  their  sales.     (3)   The  district  exchanges,  in  turn  operate 
through  the  California  Fruit  Growers'  Exchange  which  is 
managed  by  a  skillful  manager  and  a  board  of  directors.   This 
central  exchange  provides  the  district  exchanges  with  the 
necessary  marketing  facilities  on  a  cost  basis,  gathers  current 
information,  issues  daily  bulletins,  advertises,  handles  claims 
and  litigation,  provides  an  organized  selling  force  consisting 
of  some  75  principal  offices  in  the  leading  markets  of  the 
United  States,  Canada  and  Europe  and  200  salaried  salesmen, 
and  remits  the  proceeds  of  sales  to  the  growers  through  the 
district  exchanges.^ 

In  the  selling  of  fruit  few  cooperative  associations  have 
gone  beyond  the  wholesale  trade,  but  they  have  accomplished 

*G.  H.  Powell,  pp.  241-246;  Proceedings  of  40th  Fruit  Growers' 
Convention  of  California,  pp.  40-44;  Ibid.— S9th,  pp.  85-89;  F.  W. 
Powell:  Cooperative  Marketing  of  California  Fresh  Fruits,  Quarterly 
Journal  of  Economics,  Feb.,  1910. 


THE  MARKETING  OF  FRUIT 


257 


much  through  careful  distribution  and  shipping,  protection 
of  members'  interests  in  the  wholesale  markets,  and  in  some 
instances  through  eliminating  some  of  the  middlemen.  They 
sell  either  for  each  grower  individually,  or  when  the  fruit  of 
a  given  district  is  fairly  uniform,  in  pools  arranged  on  a  daily, 
monthly,  semi-monthly  or  seasonal  basis. 

The  fruit  growers  of  many  districts  also  cooperate  in  the 
grading  and  packing  of  fruit,  these  functions  being  performed 
either  by  association  employees  at  central  packing  houses  or 
by  the  growers  according  to  association  rules  and  subject  to 
inspection.     Some  harvest  their  fruit  cooperatively,  the  fruit 
being  picked  either  by  gangs  of  trained  association  pickers  or 
by  the  growers  according  to  rules.     Many  cooperate  in  the 
purchase  of  fruit  packages,  harvesting,  pruning  and  picking 
equipment  and  other  supplies  and  fertilizers;  in  the  protection 
of  fruit  from  insects  and  pests;  and  in  the  erection  of  cold 
storage  warehouses  and  the  storage  and  pre-cooling  of  fruit. 
There  is  difference  of  opinion  among  the  fruit  growers  as  to 
the  likelihood  of  generally  going  beyond  the  wholesale  markets 
in  the  cooperative  sale  of  fruit,  but  many  are  convinced  that 
in  the  fields  of  activity  mentioned  above  there  are  no  valid 
reasons  why  they  should  not  apply  the  same  principles  of 
united  action  which  have  been  so  effectively  applied  in  the 
manufacturing,  mining  and  transportation  industries. 


tl 


BIBLIOGRAPHY 

Johnson,  E.  R.,  and  Huebner,  G.  G.  Railroad  Traffic  and 
Rates,  Vol.  I,  chap,  xii ;  Shippers'  Cars  and  Private  Car 
Lines  (1911),  pp.  212-239. 

McKevitt,  F.  B.  "Marketing  of  Fruit  by  California  Fruit 
Distributors."  Proceedings  of  38th  Fruit  Growers'  Con- 
vention of  California,  pp.  53-60  (1910). 

Powell,  F.  W.  Cooperative  Marketing  of  California  Fresh 
Fruits,  Quarterly  Journal  of  Economics  (Feb.,  1910). 

Powell,  G.  H.     Cooperation  in  Agriculture  (1913),  chap.  yii. 

"Cooperation  in  the  Handling  and  Marketing  of  Fruit," 

United  States  Department  of  Agriculture  Year  Book  for 
1910,  pp.  391-406  (1911). 


258 


AGKICULTUKAL  COMMEKCE 


Seibels,  Wm.  T.    Produce  Markets  and  Marketing  (1911). 

Thompson,  C.  W.  ^Tlelation  of  Jobbers  and  Commissionmen 
to  the  Handling  of  Produce,"  The  Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science  (Nov., 
1913),  pp.  57-68. 

Waugh,  F.  a.  Fruit  Harvesting,  Storing  and  Marketing 
(1908).  ^ 

Woodford,  B.  A.     "Organized  Fruit  Marketing,"  Proceedings 
of  39th  Fruit  Growers'  Convention  of  California  (1911) 
pp.  85-89. 

United  States  Bureau  of  Crop  Estimates:  Farmers'  Bulletin 
No.  629  (Oct.  16,  1914),  pp.  25-26;  No.  641  (Nov.  23, 
1914),  pp.  30-31;  No.  651  (Feb.  6,  1915),  pp.  10-12;  No. 
665  (Nov.  20,  1915),  pp.  13-14. 

United  States  Bureau  of  Foreign  and  Domestic  Commerce: 
United  States  Commerce  and  Navigation  Report  (an- 
nual). 

United  States  Census  Office:  Thirteenth  U.  S.  Census,  1910, 
Agriculture  (1913),  Vol.  5,  pp.  702-723. 

United  States  Industrial  Commission :  Report  on  Distribution 
of  Farm  Products  (1901),  Vol.  VI,  part  14,  pp.  424-445. 

United  States  Office  of  Markets  and  Rural  Organization  (De- 
partment of  Agriculture) :  Bulletin  No.  267  (Aug.  16, 
1915);  No.  266  (Aug.  16,  1915);  No.  298,  Aug.  31, 
1915. 

United  States  Standard  Apple  Grading  Act  (Aug.  3,  1912). 


CHAPTER   XIII 

THE    COMMERCIAL,   INSPECTION    AND    GRADING   OF 
AGRICULTURAL  STAPLES 


Each  of  the  great  agricultural  staples  is  usually  classified 
into  (1)  certain  classes,  t}pes  or  general  groups,  and  (2)  into 
grades,  and  sometimes,  as  in  case  of  leaf  tobacco,  the  classes 
and  types  are  further  subdivided  or  distinguished.  Ordi- 
narily the  classes  or  types  represent  differences  in  variety,  in 
the  territory  in  which  the  product  is  grown,  or  in  general 
character,  appearance  and  quality.  The  grades  on  the  con- 
trary represent  specific  differences  in  character,  appearance, 
quality,  cleanliness,  condition  or  other  special  considera- 
tions. 

Functions  of  Inspection  and  Grading^. — The  division  of 
commodities  into  classes  and  grades  is  not  confined  to  the 
agricultural  staples,  articles  such  as  coal,  iron  ore,  pig  iron, 
lumber,  etc.,  being  similarly  handled.  The  practice  prevails 
in  practically  all  commodities  which  are  produced  by  a  large 
number  of  producers  and  are  distributed  in  large  quantities 
by  a  large  number  of  dealers.  Since  these  conditions  prevail 
in  the  farming  industries  the  inspection  and  grading  of  the 
agricultural  staples  is  particularly  important. 

The  functions  of  commercial  inspection  and  grading  are 
various.  (1)  Thje  practice  facilitates  the  purchase  and  sale 
of  farm  produce.  Though  much  spot  produce  is  sold  by  act- 
ual examination  of  the  commodities,  it  is  a  common  practice 
to  buy  and  sell  on  the  basis  of  samples,  or  a  combination  of 
samples  and  grades,  and  sometimes  on  the  basis  of  grades  ex- 
clusively. Grading  is  particularly  important  in  the  making 
and  fulfillment  of  private  contracts  calling  for  the  delivery  at 
a  stated  future  time  of  commodities  which  have  not  at  the 

259 


260 


AGRICULTUKAL  COMMERCE 


time  the  contract  is  made  been  harvested  or  have  not  as  yet 
been  acquired  by  the  dealer  contracting  to  make  the  de- 
livery. 

(2)  It  greatly  facilitates  the  quotation  and  publication  of 
spot  as  well  as  future  prices. 

(3)  It  facilitates  the  storing  and  handling  of  commodities. 
Ea.st  of  the  Rocky  Mountains ;  for  example,  grain  is  commonly 
stored  and  handled  in  bulk,  all  grain  of  a  particular  grade 
being  stored  and  handled  in  the  same  bins.  Without  inspec- 
tion and  grading  the  operation  of  the  modern  grain  elevator 
system  would  be  greatly  hampered. 

(4)  It  makes  possible  the  general  warrant  or  negotiable 
warehouse  receipt  system.  Without  systematic  grading  all 
grain  elevator  receipts  would  have  to  represent  specific  lots 
of  grain  stored  in  special  bins,  or  otherwise  all  of  the  same 
variety  would  have  to  be  indiscriminately  mixed  to  the  great 
detriment  alike  of  growers,  dealers  and  millers. 

(5)  It  facilitates  the  making  of  loans  on  farm  produce, 
for  it  enables  bankers  to  accept  receipts  issued  by  recognized 
warehouses  or  elevators  with  the  assurance  that  they  repre- 
sent the  particular  kind  of  commodity  stated  in  the  accom- 
panying inspection  certificate. 

(6)  It  tends  in  a  measure  to  protect  buyers  and  sellers 
from  unscrupulous  and  dishonest  practices.  Inspection  and 
grading  services,  particularly  in  the  local  or  country  mar- 
kets, are  not  fully  carried  out,  but  so  far  as  they  are  applied 
they  serve  to  guarantee  that  commodity  prices  shall  vary 
in  accordance  with  the  quality  or  condition  of  the  articles 
sold. 

(7)  On  the  grain  and  cotton  exchanges  where  speculative 
"futures"  are  bought  and  sold,  inspection  and  grading  are 
particularly  essential,  such  contracts  being  invariably  based 
upon  one  or  more  standard  or  basis  grades,  and  in  case  of 
delivery,  requiring  the  delivery  of  the  basis  grade  or  certain 
other  specified  grades  at  fixed  or  variable  price  differences. 

(8)  In  general,  also  the  inspection  and  grading  services — 
together  with  the  central  markets,  exchanges,  central  ware- 
house systems  and,  in  case  of  grain  and  cotton,  the  future  con- 


COMMERCIAL  INSPECTION  AND  GRADING    261 

tract  system— facilitate  the  establishment  of  a  national  or 
world  market  for  the  agricultural  staples. 

The  Inspection  and  Grading  Organization.— The  agricul- 
tural commodities  are  variously  inspected  and  graded  by  dif- 
ferent services  or  individuals : 

(1)    In   some   cases,   particularly   in  case  of  the   gram 
handled  at  some  of  the  large  primary  grain  markets,  the 
commercial  inspection  and  grading  service  is  conducted  by 
the  states  through  inspection  bureaus,  classification  boards, 
railroad  and  warehouse  commissions  or  public  utilities  com- 
missions.    (2)  In  other  cases  it  is  performed  by  organized  ex- 
changes through  bureaus,  boards  or  committees,  or  under  their 
auspices.    (3)  Dealers,  jobbers,  commissionmen  or  other  trad- 
ing and  distributing  agencies  sometimes  grade  the  commodi- 
ties which  they  handle;  and  (4)  in  some  instances,  particu- 
larly in  the  fruit  produce  and  leaf  tobacco  trades,  the  grow- 
ers, individually  or  through  cooperative  associations,  grade 
their  crops  before  disposing  of  them.     (5)  The  federal  govern- 
ment does  not  perform  actual  grading  services,  but  is  instru- 
mental in  the  grading  of  various  farm  products.    The  United 
States  Department  of  Agriculture  has  established  a  set  of 
official  cotton  types  and  grades,  and  it  has  been  authorized  to 
establish  official  cotton  standards  and  to  settle  cotton  grading 
disputes  submitted  to  it  by  either  party  to  a  future  cotton 
contract.     It  has  also  endeavored  to  harmonize  the  grading 
and   classification   rules   and   practices   in   the   grain   trade 
throughout  the  various  states.     Congress  has,  moreover,  es- 
tablished standard  grades  applicable  to  the  interstate  trade  in 

apples. 

The  inspection  and  grading  organization  and  the  methods 
pursued  in  the  grain,  cotton,  livestock,  wool  and  leaf  tobacco 
trades  will  be  described  more  fully  in  the  remainder  of  this 
chapter. 1  It  is  understood  of  course  that  the  term  inspection 
as  here  used  refers  to  commercial  inspection  and  not  to  public 
health  inspection  devoted  to  the  detection  of  disease  or  the 
violation  of  the  meat  and  livestock  inspection  or  pure  food 
statutes. 

*  For  fruit  grading  see  chap,  xii,  p.  244. 


I; 


260 


AGRICULTTJEAL  COMMERCE 


time  the  contract  is  made  been  harvested  or  have  not  as  yet 
been  acquired  by  the  dealer  contracting  to  make  the  de- 
livery. 

(2)  It  greatly  facilitates  the  quotation  and  publication  of 
spot  as  well  as  future  prices. 

(3)  It  facilitates  the  storing  and  handling  of  commodities. 
East  of  the  Rocky  Mountains ;  for  example,  grain  is  commonly 
stored  and  handled  in  bulk,  all  grain  of  a  particular  grade 
being  stored  and  handled  in  the  same  bins.  Without  inspec- 
tion and  grading  the  operation  of  the  modern  grain  elevator 
system  would  be  greatly  hampered. 

(4)  It  makes  possible  the  general  warrant  or  negotiable 
warehouse  receipt  system.  Without  systematic  grading  all 
grain  elevator  receipts  would  have  to  represent  specific  lots 
of  grain  stored  in  special  bins,  or  otherwise  all'  of  the  same 
variety  would  have  to  be  indiscriminately  mixed  to  the  great 
detriment  alike  of  growers,  dealers  and  millers. 

(5)  It  facilitates  the  making  of  loans  on  farm  produce, 
for  it  enables  bankers  to  accept  receipts  issued  by  recognized 
warehouses  or  elevators  with  the  assurance  that  they  repre- 
sent the  particular  kind  of  commodity  stated  in  the  accom- 
panying inspection  certificate. 

(6)  It  tends  in  a  measure  to  protect  buyers  and  sellers 
from  unscrupulous  and  dishonest  practices.  Inspection  and 
grading  services,  particularly  in  the  local  or  country  mar- 
kets, are  not  fully  carried  out,  but  so  far  as  they  are  applied 
they  serve  to  guarantee  that  commodity  prices  shall  vary 
in  accordance  with  the  quality  or  condition  of  the  articles 
sold. 

(7)  On  the  grain  and  cotton  exchanges  where  speculative 
"futures"  are  bought  and  sold,  inspection  and  grading  are 
particularly  essential,  such  contracts  being  invariably  based 
upon  one  or  more  standard  or  basis  grades,  and  in  case  of 
delivery,  requiring  the  delivery  of  the  basis  grade  or  certain 
other  specified  grades  at  fixed  or  variable  price  differences. 

(8)  In  general,  also  the  inspection  and  grading  services — 
together  with  the  central  markets,  exchanges,  central  ware- 
house systems  and,  in  case  of  grain  and  cotton,  the  future  con- 


COMMERCIAL  INSPECTION  AND  GRADING    261 

tract  system— facilitate  the  establishment  of  a  national  or 
world  market  for  the  agricultural  staples. 

The  Inspection  and  Grading  Organization.— The  agricul- 
tural commodities  are  variously  inspected  and  graded  by  dif- 
ferent services  or  individuals: 

(1)  In  some  cases,  particularly  in  ease  of  the  grain 
handled  at  some  of  the  large  primary  grain  markets,  the 
commercial  inspection  and  grading  service  is  conducted  by 
the  states  through  inspection  bureaus,  classification  boards, 
railroad  and  warehouse  commissions  or  public  utilities  com- 
missions. (2)  In  other  cases  it  is  performed  by  organized  ex- 
changes through  bureaus,  boards  or  committees,  or  under  their 
auspices.  (3)  Dealers,  jobbers,  commissionmen  or  other  trad- 
ing and  distributing  agencies  sometimes  grade  the  commodi- 
ties which  they  handle;  and  (4)  in  some  instances,  particu- 
larly in  the  fruit  produce  and  leaf  tobacco  trades,  the  grow- 
ers, individually  or  through  cooperative  associations,  grade 
their  crops  before  disposing  of  them.  (5)  The  federal  govern- 
ment does  not  perform  actual  grading  services,  but  is  instru- 
mental in  the  grading  of  various  farm  products.  The  United 
States  Department  of  Agriculture  has  established  a  set  of 
official  cotton  types  and  grades,  and  it  has  been  authorized  to 
establish  official  cotton  standards  and  to  settle  cotton  grading 
disputes  submitted  to  it  by  either  party  to  a  future  cotton 
contract.  It  has  also  endeavored  to  harmonize  the  grading 
and  classification  rules  and  practices  in  the  grain  trade 
throughout  the  various  states.  Congress  has,  moreover,  es- 
tablished standard  grades  applicable  to  the  interstate  trade  in 

apples. 

The  inspection  and  grading  organization  and  the  methods 
pursued  in  the  grain,  cotton,  livestock,  wool  and  leaf  tobacco 
trades  will  be  described  more  fully  in  the  remainder  of  this 
chapter.^  It  is  understood  of  course  that  the  term  inspection 
as  here  used  refers  to  commercial  inspection  and  not  to  public 
health  inspection  devoted  to  the  detection  of  disease  or  the 
violation  of  the  meat  and  livestock  inspection  or  pure  food 
statutes. 

*  For  fruit  grading  see  chap,  xii,  p.  244, 


I 


260 


AGRICULTUKAL  COMMERCE 


time  the  contract  is  made  been  harvested  or  have  not  as  yet 
been  acquired  by  the  dealer  contracting  to  make  the  de- 
livery. 

(2)  It  greatly  facilitates  the  quotation  and  publication  of 
spot  as  well  as  future  prices. 

(3)  It  facilitates  the  storing  and  handling  of  commodities. 
East  of  the  Rocky  Mountains ;  for  example,  grain  is  commonly 
stored  and  handled  in  bulk,  all  grain  of  a  particular  grade 
being  stored  and  handled  in  the  same  bins.  Without  inspec- 
tion and  grading  the  operation  of  the  modern  grain  elevator 
system  would  be  greatly  hampered. 

(4)  It  makes  possible  the  general  warrant  or  negotiable 
warehouse  receipt  system.  Without  systematic  grading  all 
grain  elevator  receipts  would  have  to  represent  specific  lots 
of  grain  stored  in  special  bins,  or  otherwise  all'  of  the  same 
variety  would  have  to  be  indiscriminately  mixed  to  the  great 
detriment  alike  of  growers,  dealers  and  millers. 

(5)  It  facilitates  the  making  of  loans  on  farm  produce, 
for  it  enables  bankers  to  accept  receipts  issued  by  recognized 
warehouses  or  elevators  with  the  assurance  that  they  repre- 
sent the  particular  kind  of  commodity  stated  in  the  accom- 
panying inspection  certificate. 

(6)  It  tends  in  a  measure  to  protect  buyers  and  sellers 
from  unscrupulous  and  dishonest  practices.  Inspection  and 
grading  services,  particularly  in  the  local  or  country  mar- 
kets, are  not  fully  carried  out,  but  so  far  as  they  are  applied 
they  serve  to  guarantee  that  commodity  prices  shall  vary 
in  accordance  with  the  quality  or  condition  of  the  articles 
sold. 

(7)  On  the  grain  and  cotton  exchanges  where  speculative 
"futures"  are  bought  and  sold,  inspection  and  grading  are 
particularly  essential,  such  contracts  being  invariably  based 
upon  one  or  more  standard  or  basis  grades,  and  in  case  of 
delivery,  requiring  the  delivery  of  the  basis  grade  or  certain 
other  specified  grades  at  fixed  or  variable  price  differences. 

(8)  In  general,  also  the  inspection  and  grading  services — 
together  with  the  central  markets,  exchanges,  central  ware- 
house systems  and,  in  case  of  grain  and  cotton,  the  future  con- 


COMMERCIAL  INSPECTION  AND  GRADING    261 

tract  system— facilitate  the  establishment  of  a  national  or 
world  market  for  the  agricultural  staples. 

The  Inspection  and  Grading  Organizatian.— The  agricul- 
tural commodities  are  variously  inspected  and  graded  by  dif- 
ferent services  or  individuals : 

(1)  In  some  cases,  particularly  in  case  of  the  grain 
handled  at  some  of  the  large  primary  grain  markets,  the 
commercial  inspection  and  grading  service  is  conducted  by 
the  states  through  inspection  bureaus,  classification  boards, 
railroad  and  warehouse  commissions  or  public  utilities  com- 
missions. (2)  In  other  cases  it  is  performed  by  organized  ex- 
changes through  bureaus,  boards  or  committees,  or  under  their 
auspices.  (3)  Dealers,  jobbers,  commissionmen  or  other  trad- 
ing and  distributing  agencies  sometimes  grade  the  commodi- 
ties which  they  handle;  and  (4)  in  some  instances,  particu- 
larly in  the  fruit  produce  and  leaf  tobacco  trades,  the  grow- 
ers, individually  or  through  cooperative  associations,  grade 
their  crops  before  disposing  of  them.  (5)  The  federal  govern- 
ment does  not  perform  actual  grading  services,  but  is  instru- 
mental in  the  grading  of  various  farm  products.  The  United 
States  Department  of  Agriculture  has  established  a  set  of 
official  cotton  types  and  grades,  and  it  has  been  authorized  to 
establish  official  cotton  standards  and  to  settle  cotton  grading 
disputes  submitted  to  it  by  either  party  to  a  future  cotton 
contract.  It  has  also  endeavored  to  harmonize  the  grading 
and  classification  rules  and  practices  in  the  grain  trade 
throughout  the  various  states.  Congress  has,  moreover,  es- 
tablished standard  grades  applicable  to  the  interstate  trade  in 
apples. 

The  inspection  and  grading  organization  and  the  methods 
pursued  in  the  grain,  cotton,  livestock,  wool  and  leaf  tobacco 
trades  will  be  described  more  fully  in  the  remainder  of  this 
chapter.^  It  is  understood  of  course  that  the  term  inspection 
as  here  used  refers  to  commercial  inspection  and  not  to  public 
health  inspection  devoted  to  the  detection  of  disease  or  the 
violation  of  the  meat  and  livestock  inspection  or  pure  food 
statutes. 

*  For  fruit  grading  see  chap,  xii,  p.  244. 


^ 


\\ 


■  r, 


I 


i 

1 


I 


!& 

'■•t 


1^^ . : 


i^ 


262  AGRICTTLTUKAL  COMMERCE 


Inspection  and  Grading  of  Grain 

At  many  country  grain  markets  throughout  the  farming 
regions  where  grain  is  the  dominant  agricultural  staple  the 
grain  sold  to  local  buyers  is  graded  locally  by  each  purchaser 
individually  or  by  inspectors  representing  all  the  buyers  of  a 
given  market.  At  other  local  markets,  particularly  in  regions 
where  relatively  little  grain  is'  produced,  no  defmite  grades 
are  established,  the  buyers  merely  bidding  on  each  lot  of 
grain  offered  by  the  farmers.  When,  however,  the  grain  bought 
at  the  country  elevators  and  warehouses  is  shipped  to  the 
primary  markets  it  is  carefully  graded  in  accordance  with 
well-organized  systems  of  public  inspection.  It  may  fre- 
quently happen  that  a  carload  graded  locally  as  say  No.  3  red 
winter  wheat  is  sold  at  the  primary  markets  as  No.  2  or  some 
other  higher  or  lower  grade.  It  is  at  the  primary  and  sea- 
board markets  that  the  grain  is  systematically  graded  for 
there  most  of  it  is  stored  and  handled  in  bulk,  there  the 
general  warrant  (warehouse  receipt)  system  prevails  and 
grain  becomes  the  basis  for  loans,  there  the  grain  is  repeat- 
edly sold  and  resold  by  grade,  sample,  or  grade  and  sample 
combined,  there  grain  "futures"  to  which  grading  is  abso- 
lutely essential  are  regularly  dealt  in,  and  there  also  the  prices 
of  spot  grain  and  futures  are  determined.  The  farmers  are 
directly  concerned  with  the  grading  of  grain  at  the  primary 
markets  whenever  individually  or  as  a  cooperative  association 
they  ship  their  grain  for  ssilc  in  tbose  niarkcls,  but  tliey  bene- 
fit indirectly  even  when  they  sell  locally,  because  the  grain 
trade  as  at  present  conducted  is  in  many  respects  based  upon 
the  prevailing  system  of  inspection. 

Grain  inspection  at  the  central  markets  is  conducted  pub- 
licly, either  through  the  grain  exchanges  or  by  a  state  inspec- 
tion service.  Most  of  the  principal  grain-growing  states  have 
created  public  grain  inspection  departments,  bureaus  or 
boards. 

minois  Orain  Inspection  Service. — The  organization  and 
methods  of  the  state  grain  inspection  service  of  Illinois  may 


t 


H 


i 


REPORTS  RECEIVED  AT  WASHINGTON  LATER  THAN  9  A.  M.  JULY  5  CAN  NOT  BE  USED. 


lA.  S.— 3243.1 


J  U  LY 

COUNTY  CORRESPONDENTS'  SCHEDULE 


[July,  1913.1 


This  schedule  is  to  be  mailed  July  i,  1913  (from  Pacific  Coast  States  June  27,  1913).  It  is  used  for  all  parts  of  the  United 
States.  Report  ONLY  on  such  crops  named  as  are  grown  In  your  county.  Please  read  carefully  instructions  on  other  side 
before  making  report. 

Condition  sliould  be  reported  on  the  baas  of  100  reprc<?cnting  a  normal  condition.    (See  paragraphs  1  and  4  on  other  side.) 

Total  production  should  be  reported  on  the  basis  of  100  representing  a  total  production  normally  or  usually  raised  in  a  favorable  season.    (See  paragraph  6  on  other  side.) 


1.  Corn. 

2.  Wheat  on 

FAIUI3. 

3.   V/lNTER 
WnEAT. 

4.  Sprinq 

WHEAT. 

5.  Oat3. 

6.  Barlet. 

7.  Rtk. 

8.  PoTiTOBS  (Irish). 

Acreage  planted  this  year. 

(c) 
Condition. 

What  percent- 
age of  L.\8T 
tear's  crop 
remains  on  farms 
July  1.  1913? 
(See  note  f .) 

Condition. 
(See  note  3.) 

Condition. 

Condition. 

Condition. 

Condition. 

Acreage  planted  this  year. 

(a) 

Compared  with 

acreage  planted 

last  year. 

(See  note  f.) 

(b) 

Compared  with 

usual  acreage. 

(See  note  1.) 

(«) 

Compared  with 

acreage  planted 

last  year. 

(6) 
Compared  with 
usual  acreage. 

Condition. 

Percent. 

Percent. 

Percent. 

Per  ctnt. 

Per  cent. 

Per  cent. 

Percent. 

Per  cent. 

PercenL 

Percent. 

Percent. 

PercenL 

9.  Tobacco. 

10.  Flax  for  seed. 

11.  Rice. 

12.  Apples. 

13.  Hai 

(all). 

14.  Wool. 

Acreage  planted  this  year. 

(e) 
Condition. 

Acreage  sown  this  year. 

(c) 
Condition. 

Acroags  sown  this  year. 

ie) 
Condition. 

Condition. 

Condition. 

(a) 

Compared  with 

acreage  planted 

last  year. 

Compared  with 
usual  acreage. 

(a) 

Cominred  with 

acreage  sown 

last  year. 

(h) 

Compared  with 

usual  acreage. 

(a) 

Compared  wich 

acreage  sown 

last  year. 

(b) 

Compared  with 

usual  acreage. 

Avenge 

weight  per 

fleece. 

Percent. 

Per  cent. 

Per  cent. 

Per  cent. 

Per  cent. 

Per  cent. 

Per  cent. 

Percent. 

PereeiU. 

Percent. 

Percent. 

PowuU. 

15.  TlMOTHT. 

16.  Clovkr 

FOR  HAT. 

17.  Alfalfa. 

18.  Millet. 

10.  Pa*. 

TURK. 

20.  Kafir  corn 

(including 

milo  maize). 

21.  Canadian 

OR  Enoltsh 

FIELD   PEAB. 

22.   COWPRAS. 

23.  Blue  orabb 

FOR  SEED. 

24.  Swnrr  potatoes. 

Condition. 

Condition. 

Condition. 

Condi  lion. 

Condition. 

Condition. 

Condition. 

Condition. 

Acreage  planted  this  year. 

Condition. 

(a) 

Compared  with 

acreage  planted 

last  year. 

(ft) 
CJompared  with 
usual  acreage. 

(c) 
Condition. 

Pereeni. 

Percent. 

Per  cent. 

Percent. 

Per  cent. 

Per  cent. 

Percent. 

Percent. 

Percent. 

Percent. 

Percent. 

Pereeni. 

25.  ToMA- 

TOU. 

26.  Cab- 
baqes. 

27.  OmoNB. 

23.  Brvns  for 

DRTINQ 

(not  lima). 

29.  Lima 

BEANS  (pole 
AND  bush). 

30.  Peaches. 

31.  Grapes. 

32.  Pears. 

33.  Black- 
berries. 

34.  Rasp- 
berries. 

35.  Straw- 
bbreibs. 

36.  Waivr- 

MELONS. 

Condition. 

Condition. 

Condition. 

Condition. 

Condition. 

Condition. 

(Condition. 

Condition. 

Condition. 

Condition. 

Total  production. 

Condition. 

Percent. 

Percent. 

Percent. 

Percent. 

Percent. 

Percent. 

Percent. 

Per  cent. 

Percent. 

Pereeni. 

Per  rent. 

Percent. 

37.  Canta- 
loupes AND 
MURKMELONS. 

38.  Oranges. 

39.  Lemons. 

40.  Hemp. 

41.  Broom 
corn. 

42.  Sugar 
cane. 

43.  Sorghum. 

44.  Sugar 

BEVn. 

45.  Hops. 

46.  PKANirre. 

Condition. 

Condition. 

Condition. 

Condition. 
Per  rent. 

Condition. 

Acreage  vvndcr  cultivation. 

(c) 
Condition. 

Condition. 

Condition. 

Condition. 

(n) 

Compared  with 

acrenge  under 

cultivation 

last  year. 

(b) 

Compared  with 

usual  acreage. 

Condition. 

Percent. 

Percent. 

Prr  cent. 

Percent. 

Per  cent. 

Per  eerd. 

Per  cent. 

Percent. 

Percent. 

Pir  cms. 

Percent. 

• 

AVERAGE  FARM  PRICE  JULY  1,  1913.    (See  note  4.) 


47. 

Corn. 

per  bushel 

of  70  lbs.  in 

ear  or  56  Iba. 

Bhelled. 

48. 

Wheat 
per  bushel 
of  60  lbs. 

49. 

Oats 

per  bmhel 
of  32  lbs. 

53. 

Barlet 
per  bushel 
of  48  lbs. 

51. 

Rtb 

per  bushel 
of  56  lbs. 

52. 

Buckwheat 
p-ir  bathel 
of  48  Iba. 

53. 
Potatoes 

(Irish) 
per  bushel 
of  60  lbs. 

54. 

Flaxseed 
per  bushel 
of  56  lbs. 

55. 

Hat 

floofle) 

per  ton 

of  2.000  lbs. 

56. 

Cotton 

(lint)  per 

pound. 

57. 

Butter 
per  pound. 

58. 

Eoas 

per 

dozen. 

69. 

Chicxens 
(live  weight) 

per  pound. 
(See  noU  5.) 

Ctnti. 

Ccnfi. 

Ccnlt. 

Cenli. 

Cenit. 

Cents. 

Cents. 

Cents. 

DdHs.      Cts. 

Cetd*. 

Cents. 

Cents. 

Centt. 

Nona. — I.  Exclude  silage  com  in  all  estimates  of  corn  acreage.  2.  In  estimating  the  percentage  of  last  year's  wheat  cron  remaining  on  farms  Julv  1,  1913,  do  not  include  any  that  may  have 
B  harvested  this  year,  but  do  include  that  which  mav  have  been  carrie<l  over  from  preceding  years.  3.  The  condition  of  winter  wheat  at  the  time  of  harvest  should  be  reported  if  the  harvesting 
tl  thb  eereal  bad  begun  prcviovis  to  the  date  indicated  for  mailing  the  schedule;  otherwise  make  report  Uie  same  as  for  the  other  crops.  4.  Price  which  farmers  receive  at  the  home  markets,  the 
eoQBtj  towns,  and  local  railroad  stations.    Price  reported  should  represent  as  nearly  as  possible  the  average  of  all  sales.    5.  Average  of  sales  of  all  ages  and  wei^ts. 

rJta: 


County 

Post  Office „     Stale. 

Form  36 


REPORTS  RECEIVED  AT  WASHINGTON  LATER  THAN  9  A.  M.  NOVEMBER  5  CAN  NOT  BE  USED. 


lA.  S.-3393 1         NOVEMBER  COUNTY  CORRESPONDENTS'  SCHEDULE.  inov.,  1013.] 

This  schedule  is  to  be  mailed  November  1,  1913  (from  Pacific  Coast  States  October  27,  1913).  It 
is  used  for  all  parts  of  the  United  States.  Report  ONLY  on  such  crops  named  as  are  grown  in  your 
county.    Please  read  carefully  the  instructions  on  the  other  side  beiore  making  report. 

Condition  should  be  reported  on  the  bjisia  of  10()  representing  a  normal  eondition.     (See  paragraphs  1  and  2  on  other  side.) 

Quality  should  be  rcjwrted  on  the  basis  of  100  representing  a  high  medium  grade.     (See  paragraph  3  on  other  side.) 

Total  production  should  be  reported  on  the  basis  of  100  re])resenting  a  total  production  normally  or  usually  raised  in  a  favorable 
season.     (See  paragraph  4  on  other  side.) 


1.  Corn. 

2.  Average  weight  per  MEASURED  bushel  op 

GRAINS  HARVESTED  THIS  TEAR. 

3.  Buckwheat 

• 

(a) 
Average  yield. 

ih) 
Quality. 

(c) 

What  pcrcentafic 

of  the  1U12  corn 

crop  on  farms 

Nov.  I.  1913? 

(.Sec  note  1.) 

(d) 

W  hat  pcrcent- 

a(;c  of  the  total 

acreage  planted 

this  year  waa 

cut  for  silaRC? 

(a) 
Winter  wheat. 

(h) 
Spring  wheat. 

Oats 

ft 

id) 
Barley. 

(0) 

Average  yield 
per  acre. 

(b) 
QuaUty. 

Bmhcls  0}  r,G  lbs. 
shelled  (which 
it  equivalmt  tj 
70  /D«.  in  ear). 

Per  eerU. 

Per  cent. 

Per  cent. 

Pounds. 

Pounds. 

Pounds. 

Pounds. 

Bushels  of  48 
lb$. 

Per  rent. 

• 

4.  Potatoes  (Irish). 

5.  ToBACtX). 

6.  Flaxseed. 

7.  Apples. 

S.  Clover  Seed. 

(a) 

Average  yield 

per  acre. 

(h) 
Quality. 

(a)    , 
Average  yield 
per  acre. 

(ft) 
Qiiality. 

(a) 

Average  yield 

per  acre. 

(b) 
Quality. 

(«) 
Total  produc- 
tion. 
(See  par.  4.) 

(6) 
Quality. 

(a) 

Average  yield 

per  acre. 

(6) 

Total  production. 
(See  par.  4.) 

Bushels  of  60 
pounds. 

Per  cent. 

Pounds 

Per  cent. 

Bushdn  of  r,ft 
pound  If. 

Per  rmf. 

Per  cent. 

Per  cent. 

Bushels  of  00 
jHiunds. 

Percent. 

9.  Kafir  Corn,  or  Milo  Mai7e. 

10.  CowPEAfl  (not  Canadian 
or  EnRli.sh  field  pca.s). 

11.  RwEET  Potatoes. 

12.  Grapes. 

13.  Pears, 

(a) 

Average  yield 

of  grain  per 

acre 

(6) 

Total  production 

of  grain. 

(Sec  par.  4.) 

(1) 

1  otnl  pr.-xliic- 

tion  of  grain. 

(Sec  par.  4.) 

CO 
Total  produc- 
tion of  forarrc. 
(See  par.  4.) 

(a) 

.Avoraeo  yield 

per  acre. 

(b) 
Quality. 

(a) 

Total 

production. 

(See  par.  4.) 

(b) 
Quality. 

(a) 

Total 

production. 

(See  par.  4.) 

(fc) 
Quality 

BuaheU  of  53  Ib». 

Per  cent. 

Percent. 

Per  cent. 

Bushdt. 

Per  cent. 

Per  cent. 

Per  cent. 

Per  esnt. 

Percent 

14.  Cranberries. 

15.  Oranges. 

16.  Sugar  Cane 
(not  sorghum). 

!7.  SoROHrM  (not 
sugar  cane). 

18.  StoAk  Beets. 

10.  Peanuts. 

(a) 
Average 

yield 
per  acre. 

(6) 

Total 

production. 

(See  par.  4.) 

Quality. 

Condition. 

Condition. 

Average  yield  of 
S'rup  por  acre. 

Condition. 

(a) 

Average  yield  per 

acre. 

ib) 

Total  production. 

(See  par.  4.) 

(0 
QuaUty. 

Barrds. 

Percent 

Percent 

Percent. 

Percent. 

Gallons. 

Per  cent. 

Bushels  of  fti  pounds. 

Per  cent. 

Percent. 

AVERAGE  FARM  PRICE,  NOVEMBER  1,   1913.    {See  note  2.) 


20. 

Corn 

per  bushel  of  70 

lbs.  in  ear  of 

AO  IIm.  Rhello  1. 


Cents. 


21. 

Wheat 
per  bushel 
of  m  IIm. 


Cents. 


22. 

Oats 
per  bu'ihcl 
of  32  lln. 


Cents. 


2:i. 

Barlet 
per  biii'icl 
of  4R  lim. 


Cmls. 


24. 

Rte 
per  bushel 
of  m  IIm. 


Cnt's 


25. 

Buck  wheat 
per  btishcl 
of  4H  IIm. 


Cents. 


26. 

Potatoes 

Hrish) 
per  bushel 
of  (Ui  IIm. 


Cents. 


27. 

Flaxbeed 
per  Imsltol 
of  m  IIm. 


Cents. 


28. 

Hat 

(loose) 
jxT  ton  of 
?jm  IN. 

IhHs.      Cts. 


29. 

Cotton 

(lint)  per 

poiuid. 

30. 

Butter 
per 

INHltld. 

31. 
Egos 
dozen. 

32. 

CmCKENS 

(live  weight) 

nor  pound. 

(nc«  notfl  3.) 

Cents. 

Ccnfi. 

Cenlt. 

Cents. 

Note  1. — In  estimating  the  percentage  of  last  year's  corn  crop  remaining  on  farms  November  1,  1913,  do  not  include  any  that 
may  have  been  harvested  this  year,  but  do  include  that  which  may  have  been  carried  over  from  preceding  years. 

Note  2. — Price  which  farmers  receive  at  the  home  markets,  the  county  towns,  and  local  railroad  stations.  Price  reported  should 
represent  as  nearly  as  possible  the  average  of  all  sales. 

Note  3. — Average  of  sales  of  all  ages  and  weights. 


Remarks: 


Name. 


County. 


Post  Office. 


State. 


Form  37 


imm»*'. 


COMMERCIAL  INSPECTION  AND  GRADING    263 

be  accepted  as  a  standard  illustration  of  state  grain  inspection 
both  because  it  was  the  first  to  be  established  in  the  United 
States  ^  and  because  it  operates  in  Chicago,  the  largest  grain 
:  mrket  in  the  world.  Prior  to  1904  the  so-called  "track  sys- 
ni'^  of  inspection  prevailed  in  Chicago  as  it  also  did  in  other 
central  grain  markets.  Under  this  system  the  grain  was  in- 
spcctod  in  the  cars  l)y  individual  inspectors  who  worked  in 
the  open  freight  yards.  In  that  year,  however,  the  much 
jmprovcd  system  of  "room*'  or  "office  inspection"  was  adopted 


MEMORANDUM  tiCKET 


ILLINOIS  STATE  GRAIN  INSPECTION 

_^ , CHICAGO    DISTRICT  wiiwi^ 


CAR  NO. 


INITIALS 


GRAIN 


GRADE 


REMARKS 


eOM«fMKK 


DATE 


IMAMKB 


MOtSTURC  CONTCNT 


•AMFkCR 


HOOK  HO. 


■<•■■■ 


Form  26 


h 


at  Chicago,  and  since  then  it  has  also  been  established  in 
Minneapolis,  Dulutli,  BufTalo  and  in  part  at  other  markets.* 
Office  inspection  is  superior  to  track  inspection  in  that  it 
avoids  the  bad  influence  of  adverse  weather  conditions  upon 
the  judgment  of  the  inspectors  and  the  condition  of  the 
grain,  substitutes  the  combined  judgment  of  several  inspec- 
tors for  the  individual  judgment  of  one,  and  has  the  ad- 
vantage of  laboratory  aid  in  the  determination  of  the  per- 
centage of  moisture.    The  grading  of  grain  is  at  best  largely 

*  Established  m  1871. 

•J.  C.  Merrill:  ** Classification  of  Grain  into  Grades,*'  The  An- 
nals of  the  American  Academy  of  Political  and  Social  Science,  Sept, 
1911,  p.  62. 


264 


AGEICTJLTTJRAL  COMMERCE 


a  matter  of  human  judgment  rather  than  one  of  scientific 
exactness,  and  this  judgment  is  less  subject  to  error  under 
the  favorable  conditions  of  a  well-heated  or  cooled  and  lighted 
inspection  room  than  in  the  open  freight  yard  which  is  sub- 
ject to  varying  conditions  of  excessive  cold  or  heat  and  of 
rain  or  snow. 

• 

Under  the  office  inspection  plan  as  now  conducted  at  Chi- 
cago, a  corps  of  state  samplers  take  samples  from  all  the  cars 


OFFICIAL  REPORT 

ILUNOIS  STATE  GRAIN  INSPECTION  DEPARTPIENT- Chicago  Dfstfkt 

Un^lfV&i   TraASCl*ipt    of  inspectors  ORAOINO  OP<iRAIN^ __I«U 


eClNO  ATPOE    COPV  or    TMCIR  WRITTEN    REPORT  ON    ORAIM  8AMPI-CS.  CAR    NO,  INITIALS. 

DOCKAOe    AND    TEST    WCIOHT.  I ^ 

I  InmpecUon 


Form  27 

arriving  at  the  freight  yards.  These  samples  consisting  of 
two  quart  bags  filled  with  grain  drawn  from  different  parts 
of  each  car  ^  are  properly  marked  and  together  with  the  rail- 
road notice  of  arrival  are  turned  over  to  the  inspectors  at  the 
inspection  office,  where  they  are  emptied  into  receivers  and 
immediately  graded.  If  the  inspector  in  charge  of  a  given  lot 
has  any  doubt  as  to  the  proper  grade  '"he  calls  upon  the  chief 
grain  inspector  or  supervising  inspector  who  is  always  present 
and  their  combined  judgment  determines  the  grade.     Fre- 

*W.  S.  Cowen:  ** Grain  Inspection  in  Illinois/'  The  Annals  of 
the  American  Academy  of  Political  and  Social  Science,  Sept.,  1911. 
pp.  81-90. 


0 


r 


COMMERCIAL  INSPECTION  AND  GRADING    265 

quently  all  the  inspectors  are  called  around  the  table  holding 
some  particularly  difficult  sample  and  each  inspector  is  re- 
quired to  make  a  grade  for  it  and  give  his  reasons  therefor."  ^ 
As  soon  as  a  sample  is  graded  the  grade  is  noted  on  a 
card  such  as  is  reproduced  in  Form  No.  26,  the  sample  and 
card  are  placed  in  the  original  bag,  and  are  passed  along  to 
the  official  record  writer,  who  enters  the  name  of  the  delivering 
railroad,  the  car  number,  the  grade,  dockage  and  test  weight 
of  the  grain,  the  reasons  for  the  grade  given,  the  names  of  the 
consignees  and  inspector  who  did  the  grading,  and  the  num- 


iji. 
Ill 


is     A4/ru/e^J^  M4/iervtA€ort/,c^^  Illinois  State  Grain  inspection  Department 


,rf^;;,i»i.^<^v^vi.»vvv^^vvM%»wwvx^»<v^ywy^i^vvvvw*/^^*^*'^^ 


Form  28 

ber  of  the  hook  on  which  the  sample  is  to  be  hung  on  the 
official  card  record  sheet,  a  copy  of  which  is  shown  in  Form 
No.  27.  The  samples  are  then  taken  to  the  "splitting"  depart- 
ment where  a  group  of  men  divide  them  into  two  equal  parts, 
and  they  are  again  examined  by  two  inspectors  so  as  to  min- 
imize the  likelihood  of  error.  One-half  of  each  sample  is 
placed  in  a  paper  bag  together  with  the  railroad  notice  and 
sent  to  the  Board  of  Trade  to  be  placed  in  charge  of  the  firm 
handling  the  shipment,  and  the  other  is  returned  to  the 
original  bag  and  hung  upon  its  proper  hook  in  the  sample 
room  to  be  preserved  for  twenty-four  hours  and  then  emptied. 

^  Ibid.,  p.  83. 


T     1 


i;! 


il 


I 


iJ: 


I  i: 


266 


AGRICULTTJEAL  COMMERCE 


The  official  grade  is  stated  in  a  state  inspection  certificate,  a 
copy  of  which  is  reproduced  in  Form  No.  28. 

Should  there  be  dissatisfaction  with  the  original  inspec- 
tion, application  for  reinspection  may  be  made  on  Form 


APPLICATION  FOR  RE-INSPECTION 
to  the 

Illinois  State  Orain  Inspection  Department— 

CHICAGO  DIVISION 

We  herewith  request  Re-Inspection  x>{  Cars  detailed  below.    If  Original  Inspection 
a  sustained  we  agree  to  pay  you  Fees  applying  and  now  in    effect.  ' 

Original  inspection. 


Re-inspection  called. 


(Date). 


(Date). 
—491^ 


Re-inspection  accomplished. 
.191 


(Date) 


^91 — 


(Hour). 


-W. 


1*0, 


(Hour). 


-M. 


CAR 

Nm^BER~~ 


INITIALS 


lO 


ROAD  OR       I  Deputy 
ELEVATOR     I   Inqir.- 


PRESENT 
GRADE 


Sustained 
(Ve.) 


REMARKS 


-Sustained ) 
Xbanged   ) 


INSPSCTOB. 


OCcial   Record  Harraoniicd. 


(APPLICANT) 

'CLERK.  Per- 


FoBM  29 

No.  29.  Even  thereafter  an  appeal  may  be  made  to  the  "Ap- 
peals Committee"  which  consists  of  three  men  not  connected 
with  the  inspection  department  and  not  engaged  in  the  pur- 
chase or  sale  of  grain.  The  judgment  of  this  committee,  after 
obtaining  and  examining  fresh  samples,  is  final  rnd  is  binding 
upon  the  parties  making  the  appeal. 


(I 


' 


COMMERCIAL  INSPECTION  AND  GRADING    267 

All  grain  stored  in  the  central  elevators  is  inspected  and 
graded  at  least  twice — once  as  has  just  been  described,  when 
it  is  loaded  "in,"  and  again  when  it  is  loaded  "out.'^  Aa 
was  previously  mentioned  it  is  owing  to  the  difference  be- 
tween the  "in"  and  "out  inspection"  that  profits  may  be 
realized  from  the  mixing  of  grain  in  private  elevators  or  spe- 
cial bins.^  So-called  house  inspectors  are  stationed  at  the 
elevators  of  Chicago  by  the  state  inspection  department  to 
grade  the  grain  shipped  out,  but  in  order  to  make  the  in  and 
out  inspections  equally  severe,  the  department  also  requires 
that  samples  from  each  car  or  vessel  load  be  sent  to  the  main 
office  for  reinspection  by  a  board  of  review  under  the  direct 
supervision  of  the  chief  grain  inspector,  any  errors  in  the 
work  of  the  house  inspector  being  subsequently  changed. 

The  Illinois  State  Grain  Inspection  Department  operates 
under  civil  service  rules.  Its  immediate  head  is  the  Chief  In- 
spector of  Grain,  and  it  is  administered  in  accordance  with 
rules  prescribed  by  and  is  under  the  supervision  of  the  Illinois 
State  Public  Utilities  Commission.  As  was  formerly  stated 
the  work  of  state  inspection  is  conducted  hand  in  hand  with 
state  weighing,  warehouse  receipt  registration  and  elevator 
supervision.^ 

Factors  Determining  Grades  of  GraiiL — F  our  principal 
considerations  determine  the  classification  of  any  given  lot  of 
grain.  (1)  Grain  is  classed  by  general  varieties.  Thus  win- 
ter wheat  is  classed  separately  from  spring  wheat  and  these 
classes  in  turn  may  be  subdivided  into  white,  red,  hard,  north- 
em,  durum,  velvet  chaff,  western  or  other  varieties. 

(2)  Differences  in  quality  and  appearance  are  important 
grading  considerations.  The  evidences  of  quality  and  ap- 
pearance sought  for  are  numerous.  To  be  assigned  a  par- 
ticular grade  a  given  lot  must  meet  all  the  requirements  and 
restrictions  as  to  weight,  soundness,  "plumpness"  or  shape 
of  berry,  dryness  or  dampness,  "sweetness,"  coolness  or  heat, 
and  ^T)rightness"  or  color.  The  inspectors  may  also  determine 
whether    the    grain    is    badly    bleached,    musty,    "smutty,'* 

*  Chap,  iv,  p.  82. 
*Ihid.,  pp.  QQ,  67. 


i 


A 


\ 


268 


AGKICULTURAL  COMMERCE 


''shrunken/'  "cracked"  finely  or  broken,  scoured,  clipped, 
chemically  treated,  or  unfit  for  warehousing.  In  connection 
with  some  of  the  grades  of  wheat,  good  ''milling  quality"  is 
also  a  grading  requirement.  Millers  do  not,  however,  regard 
the  official  grades  as  evidence  of  quality,  for  while  weight, 
plumpness,  etc.,  are  important  conditions  of  quality,  yet  the 
public  inspectors  do  not  make  a  scientific  test  of  gluten  con- 
tent or  other  direct  evidences  of  milling  quality.  Mills  are 
largely  obliged  to  make  their  own  tests,  and  in  sever.al  cities 
laboratories  devoted  to  a  scientific  analysis  of  wheat  samples 
have  been  established.^ 

(3)  ''Cleanliness'  is  a  grading  consideration,  i.  e.,  the 
relative  absence  or  presence  of  straw,  chaff  and  other  foreign 
substances  or  foreign  seeds. 

(4)  The  degree  of  mixture  of  varieties  affects  grading, 
N"o.  2  red  winter  wheat  for  example  not  permitting  of  more 
than  5  per  cent,  of  white  winter  wheat,  and  Nos.  3  and  4  of 
not  more  than  8  per  cent. 

The  Grades  of  Grain.— The  Grain  Dealers'  National  As- 
sociation, the  Chief  Grain  Inspectors'  Association  and  the 
United  States  Department  of  Agriculture  have  done  much  to 
harmonize  the  classification  and  grading  rules,  and  practices 
of  the  different  states  and  central  markets,  but  complete  uni- 
formity has  not  as  yet  been  accomplished.  A  carload  of  grain 
shipped  from  one  interior  market  to  another  or  from  an  in- 
terior to  a  seaboard  market  may  be  variously  classified  and 
graded  at  different  points. 

The  official  state  classification  and  grading  rules  applied 
in  Chicago  will  serve  to  illustrate  the  general  practice.  The 
following  rules  indicate  the  difference  between  the  various 
grades  of  white  winter  wheat  :^ 

No.  1  white  winter  wheat  shall  include  all  varieties  of  pure 
soft  white  winter  wheat,  sound,  plump,  dry,  sweet  and  cleaa, 
and  weigh  not  less  than  58  pounds  to  the  measured  bushel. 


*U.  S.  Bureau  of  Labor  Statistics:     Wheat  and  ^''our  Prices 
from  Farmer  to  Consumer   (1914),  p.  31. 

*  Established  by  State  Public  Utilities  Commission  of  Illinois. 
July  1,  1914.  ' 


COMMERCIAL  INSPECTION  AND  GRADING    269 

No.  2  white  winter  wheat  shall  include  all  varieties  of  soft 
white  winter  wheat,  dry,  sound  and  clean,  and  shall  not  con- 
tain more  than  8  per  cent,  of  soft  red  winter  wheat,  and 
weigh  not  less  than  57  pounds  to  the  measured  bushel. 

No.  3  white  winter  wheat  shall  include  all  varieties  of  soft 
white  winter  wheat.  It  may  contain  5  per  cent,  of  damaged 
grains  other  than  skin-burnt  wheat,  and  may  contain  10  per 
cent,  of  soft  red  winter  wheat,  and  weigh  not  less  than  53 
pounds  to  the  measured  bushel. 

No.  4  white  winter  wheat  shall  include  all  varieties  of  soft 
white  winter  wheat  not  fit  for  a  higher  grade  in  consequence 
of  being  poor  quality,  damp,  musty,  or  dirty,  and  shall  not 
contain  more  than  10  per  cent,  of  soft  red  winter  wheat,  and 
weigh  not  less  than  50  pounds  to  the  measured  bushel. 

The  complete  list  of  Chicago  wheat  classes  and  grades  are 
as  follows: 

Classes  Grades 

White  winter  wheat Nos.  1,  2,  3,  4 

Red  \^  nter  wheat Nos.  1,  2,  3,  4 

Hard  winter  wheat Nos.  1,  2,  3,  4 

Hard  spring  wheat No.    1 

Northern  spring  wheat Nos.  1,  2,  3,  4 

Spring  wheat   Nos.  1,  2,  3,  4 

Durum  wheat Nos.  1,  2,  3,  4 

Velvet  chaff  wheat Nos.  1,  2,  3,  4 

Western  red  wheat Nos.  1,  2,  3,  4 

Western  white  wheat Nos.  1,  2,  3,  4 

Western  hard  winter  wheat Nos.  1,  2,  3,  4 

Mixed  wheat Nos.  1,  2,  3,  4 

In  comparison  the  wheat  grades  of  New  York,  to  which 
city  much  wheat  is  shipped  from  Chicago,  are  as  follows : 

Classes  Grades 

White  winter  wheat Nos.  1,  2,  3,  4,  no  grade 

Red  winter  wheat Nos.  1,  2,  3,  4,  no  grade 

Mixed  winter  wheat Nos.  1,  2,  3,  4,  no  grade 


270 


AGRICULTURAL  COMMERCE 


Classes  Grades 

Hard  winter  wheat Nos.  1,  2,  3,  4,  no  grade 

White  western  wheat. Nos,  1,  2,  no  grade 

Hard  spring  wheat No.  1 

Northern  spring  wheat Nos,  1,  2 

Spring  wheat   Nos.  3,  4,  no  grade 

Macaroni  wheat Nos.  1,  2,  3 

The  lack  of  uniformity  resulting  from  differences  in  the 
number  of  classes  and  grades  and  in  grading  rules  or  stand- 
ards, and  from  those  due  to  the  variable  element  of  human 
judgment  which  is  always  present  in  the  grading  of  grain, 
has  at  times  caused  confusion.  The  usual  differences  between 
markets,  however,  are  understood  by  the  grain  trade,  the  dif- 
ferences have  gradually  become  narrower,  and  the  methods 
and  machinery  of  inspection  have  in  recent  years  been  im- 
proved in  many  of  the  principal  grain  centers. 


Cotton  Grading  and  Inspection 

The  same  reasons  which  underlie  the  careful  classification 
and  grading  of  grain  also  underlie  the  classification  and  grad- 
ing of  cotton,  for  both  commodities  are  the  basis  of  a  vast 
trade  in  future  contracts  as  well  as  of  spot  or  cash  transac- 
tions. The  difficulties  encountered  in  the  inspection  of  cot- 
ton are  even  greater  than  in  the  case  of  grain,  for  the  cotton 
crop  comprises  a  wider  range  of  quality.  Cotton  grades  are 
vitally  affected  by  differences  as  to  the  time  of  ripening  and 
harvesting,  methods  of  picking,  soil  conditions,  and  as  to 
storms,  frosts  and  other  conditions  of  weather.  These  dif- 
ferences, if  general,  give  every  cotton  crop  a  more  or  less 
distinctive  character,  and,  if  limited  to  particular  sections  of 
the  cotton  belt,  cause  wide  differences  in  the  range  of  quality ; 
indeed  cotton  of  many  qualities  is  sometimes  unavoidably  com- 
pressed into  a  single  bale.  The  wide  range  in  the  varieties  of 
cotton  grown  throughout  the  South,  moreover,  adds  to  the 
general  confusion. 


I 


II 


COMMERCIAL  INSPECTION  AND  GRADING    271 

Cottan-grading  Factors.— The    various   "grades"    recog- 
nized on  the  cotton  exchanges  and  generally  in  the  trade,  de- 
pend  largely    upon   three    considerations:    (1)    color,    (2) 
relative  freedom  from  leaf  and  other  foreign  substances,  and 

(3)  character. 

In  the  matter  of  color  three  main  divisions  are  recog- 
nized—white, tinged  and  stained.  Cotton  is  "white"  when  it 
opens  in  the  fields  and  is  picked  before  being  affected  by  frosts 
or  winter  storms;  it  is  "tinged"  when  the  bolls  before  they 
open  are  lightly  frosted  or  when  the  cotton  has  been  exposed 
to  rain  so  as  to  give  to  the  cotton  a  yellowish  or  golden  orange 
color;  and  it  is  "stained"  when  heavy  frosts  or  severe  rain- 
storms turn  its  natural  white  color  into  a  deep  orange  or 
tawny  color.  White  cotton  may  have  different  degrees  of 
white  ranging  from  "bright"  to  "bluish";  and  tinges  and 
stains  may  have  different  degrees  of  color.  The  classification 
returns  of  the  New  Orleans  Cotton  Exchange,  for  example, 
in  addition  to  standard  white  and  staple  cotton,  recognize  off- 
colored,  spotted,  light-tinged,  medium-tinged,  tinged,  light- 
stained,  medium-stained,  stained,  flash-dust  and  gritty  ^  cot- 
ton. The  many  differences  in  color  due  chiefly  to  weather  and 
soil  conditions,  constitute  one  of  the  difficulties  of  grading; 
the  passing  of  a  cloud  or  the  presence  of  snow  on  the  ground 
may  unconsciously  influence  an  inspector  to  the  extent  of  as 
much  as  a  quarter  of  a  grade.^ 

Leaf  and  other  foreign  substances  or  impurities  such  as 
dry  leaves,  specks  of  dust,  dirt,  sand,  bits  of  husk,  strings, 
motes,  gin-cut  fiber,  cut-seed  and  unripe  fiber,  vary  from  year 
to  year,  from  one  growing  district  to  another,  and  from  one 
bale  to  another  and  are  direct  grading  factors.^    The  "char- 

*  Eules  of  the  New  Orleans  Cotton  Exchange,  Nov.  6,  1914,  p.  38. 
»U.  S.  Bureau  of  Corporations:    Cotton  Exchanges  (1908),  Part 

1,  p.  65. 

"'Motes"  are  immature  seeds  or  ends  of  seeds  that  are  pulled 
off  in  ginning.  *'Neps"  and  **  cut-fibers ' '  are  lots,  bunches  or  kinds 
resulting  from  feeding  the  gin  too  rapidly,  from  the  gin  being  in  bad 
order,  from  the  presence  of  unripe  fiber,  or  from  dampness. 
** Strings"  result  from  ginning  unripe  or  wet  seed-cotton  or  from  the 
wrong  adjustment  of  the  gin-saw  brushes.    **  Cut-seeds"  result  from 


II 


'#• 


I         I 

I  1 


272 


AGRICULTURAL  COMMERCE 


acter"  of  the  cotton  is  a  more  indefinite  consideration,  refer- 
ring to  the  general  condition  or  quality  of  the  cotton.  All  the 
grading  factors  are  essentially  dependent  upon  human  judg- 
ment, and  it  is  entirely  probable  that  no  two  experts  would 
grade  a  large  lot  in  exactly  the  same  way  or  that  the  same 
expert  would  grade  it  in  exactly  the  same  way  at  different 
times. 

The  commercial  "grades"  of  cotton  do  not  regularly  take 
into  consideration  the  length,  strength,  pliability,  cling  and 
evenness  of  the  cotton  fiber,  although  these  considerations  are 
of  great  importance  to  the  spinner,  and  it  is  partly  because  of 
their  disregard  that  many  spinners  do  not  buy  solely  on  the 
basis  of  grade.  They  commonly  buy  either  by  sample,  or  com- 
bination of  grade  and  sample.  When  they  purchase  by  grade, 
one  of  the  practices  of  the  cotton  trade  is  to  state  the  staple  as 
well  as  the  grade,  as  for  example,  "fully  good  middling,  1^ 
inch  staple,  Liverpool  class,"  or  "strict  low  middling  lyV 
staple,  New  York  class."  Another  practice  is  to  state  the 
length  of  staple  in  comparison  with  the  length  of  staple  of  a 
type  which  has  been  agreed  upon  as  a  standard  by  both  buyer 
and  seller.  In  the  spot  markets,  cotton,  the  fiber  length  of 
which  is  1^  inches  or  above,  is  usually  known  as  "staple  cot- 
ton" and  is  more  commonly  sold  by  sample  than  in  any  other 
manner.  In  case  of  contract  deliveries,  the  New  York  and 
New  Orleans  Exchanges  make  no  allowance  unless  at  least  80 
per  cent,  of  a  lot  of  cotton  has  a  staple  of  at  least  1  or  1^ 
inches  respectively ;  and  limit  it  to  i  cent  per  pound.  These 
allowances,  moreover,  are  in  the  price  paid  for  the  cotton  and 
not  in  its  grade. 

The  various  general  classes  of  cotton  recognized  by  the 
trade,  such  as  Atlantic  Upland,  Gulf,  Texas,  peelers,  cane- 
brake,  rivers  and  benders,  convey  to  the  cotton  buyei  much 
information  as  to  the  length  and  strength  of  the  cotton  staple. 
These  classes  which  indicate  general  differences  in  variety, 
length  of  staple  and  region  of  growth  are  defined  in  chapter  V. 

"fast  ginning  with  a  hard  roll  and  by  broken  or  bent  gin-saw  teeth 
that  strike  the  grate  bars.'^  See  U.  S.  Bureau  of  Plant  Industry: 
Farmers'  Bulletin  No.  591,  July  10,  1914,  pp.  3-5. 


COMMERCIAL  INSPECTION  AND  GRADING    273 


It  is  probable  that  in  the  future  spinners  will  be  enabled 
to  purchase  a  larger  share  of  their  cotton  on  the  basis  of 
known  standard  types,  for  the  Secretary  of  Agriculture  has 
been  authorized  by  the  Cotton  Futures  Act  "to  establish  and 
promulgate  standards  of  cotton  by  which  its  quality  or  value 
may  be  judged  or  determined,  including  its  grade,  length  of 
staple,  strength  of  staple,  color,  and  such  other  qualities, 
properties,  and  conditions  as  may  be  standardized  in  practical 
form  which  shall  be  known  as  the  'Official  cotton  standards  of 
the  United  States.' " 

Cotton  Grades. — The  grades  in  most  common  use  in  Amer- 
ican spot  cotton  markets  are  thirteen  in  number,  as  follows : 


Above  Middling 

Below  Middling 

1. 

Fair 

7. 

Middling 

2. 

Strict  middling  fair 

8. 

Strict  low  middling 

3. 

Middling  fair 

9. 

Low  middling 

4. 

Strict  good  middling 

10. 

Strict  good  ordinary 

5. 

Good  middling 

11. 

Good  ordinary 

6. 

Strict  middling 

12. 

Strict  ordinary 

13. 

Ordinary 

"Middling"  cotton  is  invariably  the  basis  grade,  and  the 
grade  names  containing  the  word  "strict"  are  known  as  "half" 
grades  in  contrast  with  the  remaining  or  "full"  grades.  Fre- 
quently many  additional  grade  names  are  used,  because  the 
thirteen  grades  mentioned  above  unless  further  qualified  have 
reference  only  to  white  cottons.  In  grading  colored  cotton  the 
general  practice  in  the  larger  spot  markets  is  to  add  to  the 
usual  grade  names  the  words  "off  color"  or  "fair  color," 
"spotted,"  "tinged,"  or  "stained,"  the  result  being  that  there 
may  be  various  classes  of  the  same  grade  of  cotton.^ 

As  in  the  case  of  grain,  there  has  been  and  still  is  lack  of 
uniformity  among  the  various  cotton  markets  as  to  the  num- 
ber of  grades  recognized  and  the  severity  of  the  rules  govern- 
ing them.    As  long  ago  as  1874  the  cotton  exchanges  of  the 

*U.  S.  Bureau  of  Plant  Industry:  Farmers'  Bulletin  No.  591, 
July  10,  1914,  p.  2. 


t 


il'  'V| 


274 


AGKICULTURAL  COMMEKCE 


United  States  endeavored  to  bring  about  uniformity  by  adopt- 
ing a  system  then  known  as  the  American  classification,  but 
which  later  became  known  as  the  New  York  classification  be- 
cause the  exchange  of  that  city  adhered  to  it  for  forty  years. 
Until  January  1,  1908,  this  classification  as  enforced  in  New 
York  comprised  30  grades,  11  full  grades,  10  half  grades,  and 
9  quarter  grades.  The  basis  of  this,  as  of  all  other  cotton 
classifications,  was  "middling"  cotton,  above  which  there  were 
nine  superior  grades  and  below  which  there  were  20  grades  of 
inferior  quality.^  All  of  these  grades  were  for  many  years 
deliverable  on  New  York  contracts,  but  grading  practices  had 
meanwhile  changed  throughout  the  South  and  there  was  com- 
plaint that  too  many  low  grades  were  deliverable  in  the  New 
York  market.  The  New  York  Cotton  Exchange,  therefore,  on 
January  1,  1908,  reduced  the  number  of  deliverable  grades  to 
19,  on  April  1,  1908,  to  18,  and  on  December  1,  1914,  to  14. 
In  1915  this  entire  system  of  classification  was  abandoned  in 
favor  of  a  system  based  upon  the  standard  grades  established 
by  the  United  States  Department  of  Agriculture. 

In  an  effort  to  bring  about  greater  fairness  and  uniformity 

*  The  New  York  classification  prior  to  Jan.  1,  1908,  contained  the 
following  grades,  the  terms  *' barely'*  and  *' fully'*  indicating  quar- 
ter grades,  the  term  ''strict'*  half  grades,  and  the  others  being  full 
grades : 


t  Fair 

t  Strict  middling  fair 
Middling  fair 

*  Barely  middling  fair 
Strict  good  middling 

*  Fully  good  middling 
Good  middling 

*  Barely  good  middling 
Strict  middling 
Middling 

Strict  low  middling 

*  Fully  low  middling 
Low  middling 

*  Barely  low  middling 
Strict  good  ordinary 

*  Eliminated  on  Jan.  1,  1908, 
t  Eliminated  on  Dec.  1,  1914. 
i  Eliminated  on  Apr.  1,  1908. 


*  Fully  good  ordinary 
t  Good  ordinary 

Strict  good  middling  tinged 
Good  middling  tinged 
Strict  middling  tinged 
Middling  tinged 
Strict  low  middling  tinged 
t  Low  middling  tinged 

*  Strict  good  ordinary  tinged 

*  Fully  middling  stained 
Middling  stained 

*  Barely  middling  stained 

t  Strict  low  middling  stained 

*  Fully  low  middling  stained 

*  Low  middling  stained 


COMMERCIAL  INSPECTION  AND  GRADING    275 

in  the  grading  of  cotton,  Congress  in  1909  directed  the  De- 
partment  of  Agriculture  to  establish  a  set  of  so-called  stand- 
ard  grades,  and  the  department  decided  upon  nine  grades  of 
white  cotton  as  shown  in  Table  XII.  The  differences  in 
value  of  the  various  grades  as  compared  with  "middling"  cot- 
ton, which  are  shown  in  this  table,  are  only  approximate  and 
fluctuate  from  time  to  time. 

TABLE   XII 

Standard  Grades  and  Approximate  Differences  in  Yalue 

Qrades  Approximate  Difference  in  Value  per 

Pound 

Middling  fair 1  cent  above  middling 

Strict  good  middling....  I   cent  above  middling 

Good  middling yV  <^e^*  ^^^^^  "^.7!?!'''^ 

Strict  middling   i  cent  above  middhng 

Middling    Basis 

Strict  low  middling i  cent  below  middling 

Low  middling i  to  f  cent  below  midd  mg 

Strict  good  ordinary....  i  to  1  cent  below  middling 

Good  ordinary   1 A  to   1  ,^  cents  below  middling 

Sets  of  these  grades  are  put  up  in  boxes,  each  grade  box 
containing  twelve  types  of  a  given  grade,  and  are  sold  at  cost 
to  all  persons,  exchanges  or  organizations  interested  m  cotton 
grading.  Although  their  adoption  in  stop  markets  is  not 
compulsory,  up  to  May  1,  1914,  they  had  been  officially 
adopted  as  the  basis  of  cotton  grading  by  the  exchanges  of 
New  Orleans,  Memphis,  St.  Louis,  Charleston,  Natchez,  Little 
Rock,  Galveston,  Macon,  Mobile,  Oklahoma  and  New  York, 
and  by  the  New  England  Cotton  Buyers'  Association,  the 
Arkwright  Club,  the  Southern  Cotton  Buyers,  and  the  Fall 
River  Cotton  Buyers,  and  had  been  widely  distributed  to  pri- 
vate cotton  concerns.^ 

These  standard  grades,  moreover,  were  legally  applied  to 
future  contract  transactions  by  the  Cotton  Futures  Act  which 

»U.  S.  Bureau  of  Plant  Industry:  Farmers'  Bulletin  No.  591, 
p.  12. 


i 


ff 


■ili 


276 


AGKICTJLTURAL  COMMERCE 


became  effective  on  February  18,  1915,  and  by  the  accompany- 
ing rules  of  the  Secretary  of  Agriculture. 

The  adoption  of  the  standard  grades  by  an  exchange  does 
not  limit  its  grades  to  nine.  The  standard  grades  merely 
serve  as  the  basis  of  classification  and  as  a  limit  upon  the 
range  of  deliverable  cotton.  The  New  Orleans  Cotton  Ex- 
change, for  example,  which  had  adopted  them  as  its  basis 
even  before  the  passage  of  the  Cotton  Futures  Act,  recognizes 
seventeen  classes  of  white  cotton  as  follows : 


Middling  fair 

Strict  good  middling  to 
middling  fair 

Strict  good  middling 

Good  middling  to  strict 
good  middling 

Good  middling 

Strict  to  good  middling 

Strict  middling 

Middling  to  strict  mid- 
dling 

Middling 


Strict     low     middling     to 

middling 
Strict  low  middling 
Low  middling  to  strict  low 

middling 
Low  middling 
Strict    good    ordinary    to 

low  middling 
Strict  good  ordinary 
Good     ordinary    to     strict 

good  ordinary 
Good  ordinary 


As  stated  above  (page  271)  the  New  Orleans  Exchange 
also  requires  the  classifying  for  off-colored,  spotted  and  dis- 
colored cottons  in  accordance  with  these  classes.  The  grades 
deliverable  on  a  future  contract^  however,  are  limited  to  the 
grades  stated  in  the  contract  (page  141)  and  fall  within  the 
range  defined  by  the  standard  grades  of  the  Department  of 
Agriculture. 

In  1914,  the  New  York  Cotton  Exchange  also  adopted  the 
standard  grades  of  the  Department  of  Agriculture  as  the  basis 
of  classification  for  all  contracts  maturing  April  1,  1915,  and 
thereafter.  The  Cotton  Futures  Act,  however,  resulted  in 
their  general  adoption  on  February  18,  1915,  the  exchange 
recognizing  the  nineteen  grades  indicated  in  Form  No.  35 
(page  284).  The  grades  deliverable  on  future  contracts  as  in 
case  of  the  New  Orleans  Exchange  are  limited  so  as  to  comply 
with  the  provisions  of  the  Cotton  Futures  Act. 


COMMERCIAL  INSPECTION  AND  GRADING    277 

In  June,  1913,  an  international  convention  of  cotton  ex- 
changes was  held  at  Liverpool,  and  an  endeavor  was  made  to 
bring  about  an  international  standard  of  cotton  classification. 
The  convention  decided  in  favor  of  the  Liverpool  standards  ^ 
with  certain  changes  in  the  lower  grades.  This  system  of 
grading  has,  however,  not  been  adopted  by  American  ex- 
changes, although  it  is  urged  by  the  New  York  Cotton  Ex- 
change in  preference  to  the  standard  grades  established  by  the 
Department  of  Agriculture.^ 

The  "official  cotton  standards  of  the  United  States"  which 
the  Secretary  of  Agriculture  may  establish  in  accordance  with 
section  9  of  the  Cotton  Futures  Act  may  in  the  future  cause 
wide  changes  in  cotton  grading,  for  he  is  instructed  to  con- 
sider not  only  the  usual  factors  which  have  influenced  cotton 
grading  but  also  the  length  and  strength  of  staple,  and  any 
other  properties  which  may  be  standardized.  When  estab- 
lished, these  official  standards  may,  moreover,  tend  to  bring 
about  a  greater  degree  of  uniformity  than  has  thus  far  pre- 
vailed in  the  cotton  trade,  because  many  spot  markets  will 
doubtless  adopt  them  voluntarily  and  exchanges  upon  which 
futures  are  sold  are  legally  required  to  adopt  them.  The  rules 
of  the  New  Orleans  Cotton  Exchange,  for  example,  provide 
as  follows: 

RULE  39.  The  present  Type  Standards,  which  are  those 
adopted  by  the  United  States  Department  of  Agriculture,  shall 
govern  all  transactions  for  delivery  made  under  these  rules 
and  those  previously  existing.  When,  however,  the  "Official 
Cotton  Standards  of  the  United  States,"  to  be  established  by 
the  Secretary  of  Agriculture,  under  the  United  States  Cotton 
Futures  Act,  are  promulgated,  they  shall  become  the  official 
standards  of  the  New  Orleans  Cotton  Exchange  and  shall  be 
the  basis  of  settlement  of  all  "New  Style"  contracts  then  exist- 
ing, whether  or  not  the  value  of  such  contracts  is  thereby 
affected. 

*  Liverpool  Standard  Grades  are:  Middling  fair,  fully  good  mid- 
dling, good  middling,  fully  middling,  middling,  fully  low  middling 
(1  tinged  type),  low  middling  (grayer),  fully  good  ordinary  (ofif- 
color),  good  ordinary  (off-color),  and  ordinary. 

*See  Textile  Manufacturers*  Journal,  May  9,  1914,  pp.  77-79; 
Ibid.,  May  2,  1914,  pp.  79-83. 


11 


If 


NEW  YORK  COTTON  EXCHANGE. 


INSPECTION   BUREAU. 


New  York,. 


.191 


Mr.. 


INSPECTOR-IN<HIEF. 


The  following  is  a  report  6f  Cotton 


inspected  by  me  at . ^ 

For  account  of_ 

Request  No Passed. 

Weigher, -^ 


-Bales.  Rejected 

,  Samples^ 


-Bales. 


.lbs. 


ASSISTANT  INSPECTOR. 


REMARKS 


SAMPLER. 


■■»■   HI"      ■»    ■   ■  1  J  ■  ■■      ■ 


Form  30  (front) 


278 


Form  30  (back) 
279 


^^^_ 

^4 

SAMPLER 

i 

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Ik 

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i 

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Ul 

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a 

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- 

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u 

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o 

oa 

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s 

1- 


I  'I 


I  , 


280 


AGRICULTUKAL  COMMERCE 


r> 


II 


Prior  to  1909-1910  the  grading  organization  of  the  New 
York  and  New  Orleans  exchanges  differed  widely,  the  latter 
having  had  a  board  of  arbitrators  to  pass  upon  cotton  when 
tendered  for  contract  deliveries  and  assuming  no  official  re- 
sponsibility for  the  grades  of  the  cotton.  Since  then,  how- 
ever, the  New  Orleans  Cotton  Exchange  has  adopted  the  New 
York  plan,  both  exchanges  having  an  official  inspection  bureau 
and  an  inspection  fund,  and  both  provide  for  the  regular  issue 
of  inspection  certificates.    Their  inspection  organizations  dif- 


C«7»W. 

R^ectei 

louni  of 

-     .  /9 

at 

For  Aci 

•            ■                     ..   -INSPECTOR  N,  Y.  C.  EX. 

NO. 

Mark 

WEIGHT 

ALLOWANCE 

COMP. 

UN- 
COMP. 

WHY  Rejected 

WET 

BAGGING 

^^'^-'^^.w. 

^— ^                                       ^^ 

. 

^'N-. 

Form  31 

fer  in  details  but  the  New  York  plan  may  be  regarded  as 
typical  of  both  exchanges. 

The  owner  of  a  lot  of  cotton  received  at  New  York,  if 
desiring  to  "certificate"  his  cotton,  notifies  the  inspection 
bureau  to  that  effect  and  states  the  name  of  a  licensed  weigher. 
The  inspector-in-chief  thereupon  details  an  assistant  inspector 
and  sampler  to  undertake  the  preliminary  classification.  Sam- 
ples are  drawn  from  both  sides  of  each  bale  by  the  sampler, 
the  bales  are  weighed  both  by  the  weighmaster  and  the  as- 
sistant inspector,  they  are  grouped  into  lots  of  roughly  uni- 
form grade,  each  bale  is  given  a  lot  number,  and  thosr 


ii 


COMMERCIAL  INSPECTION  AND  GRADING    281 

which  seem  to  be  below  any  recognized  grade  are  rejected. 
The  rejection  of  bales  by  the  assistant  inspector  is,  however, 
not  final,  the  rejected  samples  being  passed  upon  by  the  classi- 
fication committee. 

The  following  reports  are  then  made  to  the  inspection 
bureau:   (1)   assistant  inspector's  report  of  cotton  received 


Inspection  Bureau,  New  York  Cotton  Exchange. 

JMcjr  l«i-X'. 

/«/ 

Sftuni  n£ 

.,§ 

■MUM 

■«L(t 

WIICHT 

LOT   NUMBCR 

MAWK 

•  ALI* 

WCtOMT 

, 

^ 

"■ 

' 

_ 

_ 

^^^^_ 

^^^ 

M. 

Uetriieii  IIWr»er.    | 

Form  32 

(Form  30),  (2)  report  of  cotton  rejected  (Form  31),  and 
(3)  a  weighmaster's  return  of  weights  (Form  32). 

The  samples  drawn  from  the  bales  are  divided  into  two 
parts,  and  taken  to  the  sample  rooms  where  they  are  placed 
in  papers  and  are  opened  and  exposed  to  the  air  for  twenty- 
four  hours.^  They  are  then  compared  by  a  member  of  the 
classification  committee,  and  one  set  is  retained  at  the  sample 
room  to  remain  there  until  the  cotton  is  shipped  or  reclassed 

while  the  other  or  original  sample  is  taken  to  the  classification 

^ ____^ ' 

*  Bule  as  to  length  of  exposure  not  always  observed. 


i 


282 


AGHICULTURAL  COMMERCE 


room.  Both  sets  of  samples  are  identified  with  a  poster,  the 
form  of  poster  attached  to  the  original  set  being  reproduced  in 
Form  33.  Two  members  of  the  classification  committee  then 
pass  on  each  lot  of  samples,  a  third  being  called  in  case  of  dis- 
agreement. In  addition  to  their  expert  knowledge  these  grad- 
ers have  before  them  a  standard  set  of  working  cotton  types 
with  which  they  may  compare  the  samples.    Upon  arriving  at 


OFFICE  OF  INSPECrOR-lN-CHIEF 

NEW  YORK  COTTON  EXCHANGE 


M»M 


jr^^su. 


■f9 


•  «^^wig>w.~~....» 


HLjLmu  Independent  Stores 


.SSmll^  ^&dm 


——••>»■■••—■  a^^— ^f— I 


^V 


Form  33 

a  decision  they  enter  their  findings  in  a  memorandum  (Form 
34),  one  copy  of  which  is  retained  by  the  classification  com- 
mittee and  the  other  given  to  the  owner  of  the  cotton.*  The 
owner  if  dissatisfied  may  appeal  from  the  original  grading 
within  ten  days,  in  which  case  the  duplicate  set  of  samples 
which  was  retained  at  the  sample  room  is  submitted  to  the 
entire  classification  committee  or  to  at  least  four  members  for 
final  decision,  their  findings  being  entered  in  a  memorandum 

*  Grades  changed  somewhat  since  Feb.  18,  1915.    Correct  grades 
shown  in  Form  10. 


CLASSIFICATION  COMMITTEE. 
NEW  YORK  COTTON  EXCHANGE 


Uo.. 


New  York,. 


.iql 


Classification  of. Bales  Cotton 

Submitted  by i..- 

Mark^ Lot  No^ 

iVarehoiue 


GRADES, 

-r»lr 


_8triot  Middling  Fair 
.Middling  Fair 
_8trtct  Good  Middling 
-Fuily'cood  Middling 
_Cobd°Mlddllng 


.Barely  Cood  Middling 


.StrlcrMlddlIng 


M 


Fully  Middling 


.Middling 
.Barely  Middling 

MoS 

.Strict  Low  Middling 

J6oS 

.Fully  Low  Middling 
.Low^Mlddiing 

1.00  off 

.Strict  Good  Ordinary 

1.00  off 

.Good  Ordinary 


.StrictCood  Middling  Tinged 

V»l«  of  MM.  _.  . 

.Good  Middling  Tinged 

.Strict  Middling  Tinged 

.•off      _ 
.Middling  Tinged 

.Strict  Low  Middling  Tinged 

1.(0  off 

.Low  Middling  Tinged 


l.«O0  .        ^ 

Middling  Stained 


Total 

Bales 


>CoimmUilt. 


FoBM  34 


283 


J I 


284 


AGRICULTURAL  COMMERCE 


slip  similar  in  form  to  the  memorandum  reproduced  in 
Form  34.  When  the  grades  are  finally  established  the  inspee- 
tor-in-chief  issties  an  official  certificate  (Form  35)  which  is 
guaranteed  by  the  exchange  and  is  used  in  the  making  of 
deliveries.  This  certificate  covers  the  grade  for  one  year, 
unless  the  cotton  is  meanwhile  withdrawn  from  the  ware- 
house for  shipment  or  unless  the  person  to  whom  the  cotton 
is   delivered  requests  a  reclassification.     Any  reduction  of 


NEiAi  YORK  COTTON   EXCHANGE 

^  OFFICE  OF"  JJfSPECTOBrl/f-CBlSF. 

- nnnn  v*m  ■-■  -in  ^'^  Compressed. 

1to.l3aQQ_i,  l^^m^  J Bde,  Uncompressed. 


9  3  1 


9Uc«ipt  tfito  (5««t«^cot«  i»  -ibcMtificb  a»  Sot  Slo. 


-,  «uttA  *v(%ictt 


9llo«A^ 


.; — SiaUa  vmt*  ctoaaeb  tif  rfi«  ^Sfcuv-.  if  cation  CoMtmin**  ao  fottotwn 

NO  QUARARTEE  AS  TO  ORADE  0«  STArU. 


IM  iUMnMriM  n  m  »etmiw«  inn  rm  tntm.  cmM 

tlHWIM  W  IK  IMIU  lUin. 

T«it  cf  aTif  ictn  au  (euvem* 

■  T    TRI    latriCTIOR     tUREMI. 


ORADKS. 


POOMDS   WSIOHT. 


—Middling  Fair 
-Strict  Good  Uid. 
-Good  Middlinc 
-Strict  Middling  ' 
-Middling 


— Strict  Low  Mid. 

,  tow  Middling 
—Strict  Good  Ord. 
_Cocd  Ordinaf7 


-Strict  Good  Mid.  Yellow  Ting«d 
-Good  Middling  Yellow  Tinged 
-Strict  Middling  Yellow  Tinged 
Middling  Yellow  Tinged 


-Strict  Low  Mid.  Yellow  Tinged 
-Low  Middling  Yellow  Tinged 


OMtoKKO  ar 


aUADK  nr   HUMBZIIS  OM  OTMXB   SIDB. 


-Mid.  Blue  Tinged 
-S-t  Low  MidBlncTgd 
-Li>w  Mid.  Bloc  T-gd 


-Mid.  Yellow  Staiocd 


a*A  tAot  tK*  <jtAbt»  a»  »p«cif«6  o&ov«  oc«  cot**ct^ 
9Uw  ^o«<i, . 


i: 

•■  ii 

grade  in  case  of  such  reclassification  entitles  the  receiver  to 
draw  upon  the  inspection  fund  of  the  exchange  to  the  extent 
of  such  reduction,  the  fund  being  derived  from  the  fees  col- 
lected by  the  inspection  bureau.  i. 

Although,  owing  to  the  extensive  sale  of  speculative  future 
contracts,  an  unusual  amount  of  attention  has  for  many  years 
been  given  to  the  grading  of  grain  and  cotton,  other  farm 
staples  are  also  classified  and  graded  at  some  stage  or  other 
of  their  distribution  from  producer  to  consumer.  The  pur- 
chase and  sale  of  livestock,  wool^  tobacco  and  fruit  in  the 
great  spot  markets  for  those  commodities,  the  quotation  of 


COMMERCIAL  INSPECTION  AND  GRADING    285 

spot  prices  and  the  granting  of  loans  are  greatly  facilitated  by 
grading. 

Commercial  Classifying  and  Grading  of  Livestock 

Livestock  sold  by  growers  to  local  dealers  is  seldom  graded 
at  the  local  markets,  each  animal  or  group  being  purchased 
by  actual  inspection  on  the  part  of  the  buyer.  Those  sold  in 
the  stockyards  of  the  large  central  markets  are  likewise  sold 
by  actual  inspection  at  the  pens,  but  as  formerly  stated  they 
are  usually  divided  into  "bunches'*  so  as  to  attain  approxi- 
mate uniformity  in  "character  and  quality."  This  classifica- 
tion into  "bunches"  by  commissionmen  for  the  purpose  of 
sale  is  a  form  of  grading,  but  it  is  not  conducted  in  accordance 
with  fixed  rules.  The  animals  of  any  particular  shipment  are 
bunched  in  accordance  with  the  views  of  the  commissionman 
and  the  buyers  as  to  number,  sex,  age,  and  often  as  to  their 
quality  for  dressed  meat,  export,  canning,  curing,  stocking, 
feeding  or  other  purposes. 

Classes  and  grades  are  also  needed  at  the  central  markets 
for  the  quoting  of  livestock  prices.  The  animals  are  not  sys- 
tematically classed  and  graded  for  this  purpose,  but  from  the 
sales  which  are  made  at  the  stockyards  each  market  is  able  to 
publish  prices  in  terms  of  classes  and  grades  which  are  gen- 
erally understood  by  the  trade.  There  is,  however,  no  uni- 
formity either  in  the  factors  considered  or  in  the  terms  used 
to  designate  the  grades. 

In  quoting  the  prices  of  cattle,  for  example,  a  distinction 
IS  made  between  "native,"  "western,"  and  "Texan"  cattle, 
which  constitute  classes  indicating  in  general  their  breed  and 
the  place  where  they  are  raised.  Native  cattle  are  bred  and 
raised  on  the  farms  of  the  Central  West,  western  cattle  on  the 
ranges  and  ranches  of  the  Far  West  and  Northwest,  and 
Texan  cattle  on  the  ranges  and  ranches  of  the  Southwest. 
Western  and  Texan  cattle  are  further  distinguished  as  to  the 
method  of  preparation  for  market,  terms  such  as  grassers, 
corn-fed  or  hay-fed  Texan  or  western,  Montana-Texans  or 
Wyoming-Texans  (Texan-cattle  which  have  grazed  on  western 


I  A 
If 


u- 


286 


AGRICTTLTTTBAL  COMMENCE 


ranges),  Dakota  natives  (Dakota  range  cattle  originating  in 
Texas),  etc.,  are  frequently  used  in  price  quotations  but  with- 
out uniform  practice  and  the  distinctions  between  these  classes 
are  not  sharp.  Cattle  are  further  classed  according  to  sex  and 
age.  Thus  the  price  quotations  may  be  in  terms  of  native 
steers,  western  corn-fed  cows,  etc.  Any  cattle,  moreover, 
which  are  sold  to  feeders,  stock  growers,  breeders  or  dairy- 
men for  fattening  or  stocking  purposes  are  known  as  "feed- 
ers" or  "stockers." 

The  various  classes  of  cattle  are  sometimes,  though  not 
always,  subdivided  into  grades  of  quality  indicating  difference 
as  to  weight,  the  amount  of  dressed  beef  obtainable  from  an 
animal  of  a  given  live  weight,  the  quality  of  the  dressed  beef 
and  the  quality  of  the  animal  for  canning,  curing,  export  or 
other  purposes.  The  grades  usually  recognized  are  fancy, 
prime,  choice,  good,  medium,  and  rough.  Thus  the  prices 
may  be  quoted  in  terms  of  choice  western  corn-fed  steers, 
prime  native  steers,  or  any  other  combination  of  class  and 
grade. 

The  cattle  grades  are  not  generally  found  in  the  purchase 
records  of  the  packing  concerns  who  are  the  principal  buyers. 
The  packers  commonly  record  their  purchases  in  terms  of  the 
classes  mentioned  above,  the  records  of  one  packing  plant 
showing  as  many  as  twenty-two  combinations  of  classes.^  In 
giving  orders  to  their  cattle  buyers,  the  packers  and  slaugh- 
terers also  use  terms  such  as  "packers,"  "beef  cattle,"  "butcher 


*  U.  S.  Bureau  of  Corporation :  The  Beef  Industry,  p.  90 — the 
records  of  the  Hammond  Company  at  St.  Joseph  showing  the  follow- 
ing classes: 

12.  ,  Texan  steers 

13.  Fed  Texan 

14.  Texan  heifers 

15.  Texan  cows 

16.  Stags 

17.  Steers 

18.  Cows 

19.  Rangers 

20.  Bange  cows 

21.  Hay  fed 

22.  Fed 


1. 

Native  steers 

2. 

Yearlings,  baby  beef 

3. 

Branded  natives 

4. 

Branded 

5. 

Native  heifers 

6. 

Heifers 

7. 

Colorado  heifers 

8. 

Westerns 

9. 

Western  steers 

10. 

Corn-fed  westerns 

11. 

Fed  westerns 

COMMERCIAL  INSPECTION  AND  GRADING    287 

stock,"  "canners,''  "cutters,''  "strippers,"  %ulls,"  "calves,'' 
and  "export,"  each  term  indicating  a  particular  use  of  the 
animal  for  packing,  local  butcher,  canning,  curing,  expoiivng 
or  other  purposes.^ 

The  Grading  of  Wool 

Though  much  wool  is  purchased  locally  without  being 
graded  in  any  way,  this  staple  is  systematically  classified  and 
graded  at  the  large  central  markets^  The  jdomestic  wools  of 
the  United  States  are  divided  into  classes  according  to  their 
geographical  origin,  the  usual  territorial  groups  being  (1) 
Ohio,  Pennsylvania,  and  West  Virginia;  (2)  Michigan  and 
New  York;  (3)  Kentucky  and  similar  districts;  (4)  Califor- 
nia; (5)  Texas;  (6)  Oregon;  (7)  Montana,  Wyoming  and 
Idaho,  the  wool  there  grown  being  known  as  "territory"  wool ; 
(8)  Utah;  (9)  Nevada;  and  (10)  "pulled"  wool  which  is  the 
short  wool  removed  from  the  skins  after  slaughter  and  origi- 
nates mainly  in  the  large  packing  centers.  These  territorial 
classes  are  further  classified,  according  to  the  extent  of  their 
preparation  for  spinning,  into  "unwashed,"  "washed"  and 
"scoured"  wool.^ 

The  various  classes  of  domestic  wool  are  variously  divided 
in  grades,  in  accordance  with  the  relative  amount  of  merino 
blood  in  the  sheep,  the  coarseness  or  fineness  of  the  wool  fiber, 
the  amount  of  foreign  matter  and  grease  or  probable  scouring 
percentage,  the  length  of  the  fiber,  their  adaptation  for  comb- 
ing or  carding,  and  the  time  and  frequency  of  shearing.  The 
various  classes  of  eastern  wools,  although  they  are  not  graded 
the  same  in  every  case,  are  usually  divided  into  the  following 
grades:  (1)  "picklock"  or  wool  from  the  pure  Saxony  merino 
sheep,  (2)  XXX  or  wool  resulting  from  the  first  cross  of  the 
Saxony  with  the  ordinary  merino  sheep,  (3)  XX  or  wool  from 
the  full-blooded  merino,  (4)  X  or  f  merino  blood  wool,  (5) 

*  The  classification  and  grading  of  sheep  and  hogs  differ  in  detail 
but  are  similar  in  principle,  the  usual  classes  and  grades  being 
quoted  in  the  daily  press. 

'See  chap,  x,  p.  215. 


t  '1 


I 


288 


AGRICULTUKAL  COMMERCE 


^,  f  and  i  blood,  indicating  relative  amounts  of  merino  blood, 
(6)  "fine  delaine,"  or  straight  merino  wool  adapted  to  comb- 
ing and  usually  2 J  or  more  inches  in  length  and  (7)  "braid" 
or  coarse  wool.  The  classes  of  western  wool  are  variously 
graded  in  terms  of  numbers,  terms  of  quality,  adaptation  for 
combing  or  carding  ("staple''  or  "clothing"),  spring  or  fall 
clip,  12-,  8-  or  6-months'  clip,  or  growth  in  particular  terri- 
torial regions.  The  grades  of  pulled  wool  are  stated  in  terms 
of  letters  and  quality. 

In  the  following  table  (No.  XIII)  of  domestic  and  foreign 
wool  classes  and  grades  it  should  be  noted  that  the  relative 
prices  of  eastern  wools  are  quoted  on  the  washed  or  unwashed 
basis  while  those  of  western  and  pulled  wools  are  quoted  on 
the  scoured  basis.  The  table  shows  the  classes  and  grades 
regularly  in  use  in  the  Boston  wool  market. 


TABLE  XIII 
Boston  Classification  op  Wools* 

DOMESTIC  WOOLS 
Ohio,  Pbnnstlvania  and  Wbst  VmaiNiA 


Washed 

XX  &  abv @  27 

*&  I  blood 26  @  26J 

Finedel @  27 

i  bid 25  @  26 


Unwashed 

Fn.  unwshed 

Unmr'ble 23J 

Fine  del 

ibid 24 

J&lbld 23* 


Michigan  and  New  Yobk 
Unwashed 

Kne  unwashed 20      @  21 

Finedel 21J     @  22J 


4  bid 

i&l  bid. 


Unwashed 


bid. 
bid. 


Kbntuckt  and  SimhiAB 

23       @  24  ibid 

23      @  23\        Braid  cbg . 


23 
23 


23 


fCAUFOBmA  (Scoured  Basis) 

Sp'gnorth'nfree&12mo.  48      @  50  S'th,  6  and  8  mos 42 

Sp'g  middle  countries 45      @  46  Fall  free 43 

S^th,  12  mo 43       @  44  Fall  defect 35 

Carbonized 42 

Texas  (Scoured  Basis) 

Fine  12  mo 55       @  57  Fine  Fall 47 

Fine  8  mo 50      @  52  Georgia 20 

Oregon  (Scoured  Basis) 

Staple,  eastern  No.  1 58      @  60  Cloth.  Eastern  No.  2 49 

Staple,  eastern.  No.  2 55       @  56  Val.  No.  1 47 

Cloth,  eastern  No.  1 52       @  53  Val.  No.  2 44 

Val.  No.  3 40 


@  24 
@  23i 


@  23i 
@  20 


@  43 
@  44 
@  37 
@  43 


@  48 
@  21 


@  50 
@  48 
@  45 
@  41 


1  Prices  as  on  May  7,  1914,  at  Boston.    Textile  Manufacturers'  Journal,  May  9, 
1914. 


COMMERCIAL  INSPECTION  AND  GRADING    289 


Montana,  Idaho  and  Wyoming  (Scoured) 

Staple,  fine.. 58       @  60  Fine  cloth'g. .  ka 

@  54  Fine  Med .' .' .' 50 


Staple  i  bid  .* .' .' .'  .* .'  .*  .* .' ,' .' .' .'  53 


Fine. 


Utah  (Scoured) 
54      @  55  Fine  Med , 


Colorado  and  New  Mexico  (Scoured) 
S°e- 53      @  54 

go- J 49       @  50 

N0.2 45       @  4g 


N0.3 35 

No.  4 38 


Fine  cloth'g 54 


Scoured 

Ertra 66 

AA 54 

Fine  A .!!!.!  51 

A  super .'  .*  43 

B  super 40 


Nevada  (Scoured) 
@  56  Finemed. 


@~58 
@  56 
@  53 
@  50 
@  43 


Pulled 

_  Scoured 

C  super 32 

Cbgs.  fine "  *  52 

Medium [[  4g 

Coarse 45 


@  56 
@  53 


50       @  52 


@  36 
@  34 


50      @  52 


@  36 
@  53 
@  50 
@  46 


FOREIGN  CLOTHING  AND  COMBING  WOOLS 


Australia  (Scoured  Basis) 
Victorian  Combing: 

708 65 

648 61 

608 57 

56s-58s 52 


50s. 

46s 

40a-44g 

New  Zealand: 

568 

50s 

46s 

44S-468 

408-^448 

408 

36s 


46 
40 
36 

49 
45 
41 
38 
36 
35 
34 


Aleppo: 

Washed 27 

Washed  col 19 

Angora 1.5 

Awaasi 23 

Karadi 23 

Bokaira: 

White 19 

Colors 14 

Chiria: 

Combing 17 

Wshd.  cbg 25 

Wld.  ball... 19 

Willowed 18 

Unwid 16 

Cordova .'  15 

Donakox: 

Combing 25 

Oeorgian: 

Autumn 20 


@  66 
@  63 
@  59 
@  53 
@  47 
@  42 
@  37 


Montevideo  (Greasy) 
Lincoln 0.^1 

tbid  :::::::  ii* 

illS.^".:::::::: il 

ibid ::::  s 


@  24 
@  26 
@  27 
@  29 
@  30 


@  50 
@  46 
@  42 
@  39 
@  37 
@  36 
@  35 


Buenos  Ayrea — x-breds: 

P"coln @  23i 

F^.M 25  @  25* 

„  *  /?'?••..•.•..  • Nominal 

English  and  Irish:  *"*»«»* 

Shropshire 32  @  33 

?H8sex 29  @  30 

Irish  hogs 30  @  31 


FOREIGN  CARPET 


@  28 
@  20 
@  16 
@  25 
@  25 

@  20 
@  15 

@  18 
@  26 
@  21 
@  21 


@ 
@ 


18 
17 


@  27 
@  20} 


Khorassian: 

IstcHp 19 

2d  clip 20 

Mongolian: 

Bijsk 24J 

Urga      ., 23 

Manchuna 22 

Scotch  hlk: 

Faced 18 

Camel's  hair  (Rus'n)V.! !  21 
Servian  skin  wools 21 

East  India: 

Gray ' 

Washed: 

Vickaneer 21 

^"a      30 

Kandahar 21 

Spring ;|   13J 


®  20 
@  21 

@  25| 

§24 
23 

@  20 
@  25 
@  23 

@  14 

@  24 
@  33 
@  23 
@  15 


r 


_     . .  Domestic 

Combing 30 

Carding 23 


MOHAIR 


@  33 
@  27 


Turkey .^°!^...  38 

Cape 34 


@  40 
@  36 


290 


AGRICULTURAL  COMMERCE 


Leaf  Tobacco  Grades 

Leaf  tobacco  and  fruits  are  distinctive  in  that  they  are  fre- 
quently graded  by  the  growers  before  they  are  sold.  Owing 
to  this  practice,  fruit  grading  has  unavoidably  been  described 
in  Chapter  XII,  and  tobacco  grading  has  been  briefly  referred 
to  in  Chapter  XI. 

As  was  previously  mentioned  the  leaf  tobacco  trade  recog- 
nizes distinct  classes  and  types  of  leaf,  the  former  being  based 
upon  its  adaptation  for  a  particular  use,  and  the  latter  upon  a 
combination  of  qualities  such  as  color,  strength,  elasticity, 
body  and  flavor  ^  or  a  particular  method  of  curing  the  leaf. 
These  types,  however,  are  sorted  into  grades  which  represent 
varying  degrees  of  excellence.  As  in  the  case  of  tobacco 
types,  the  properties  considered  in  grading  also  include  color, 
strength,  elasticity,  body  and  flavor,  the  difference  being  that 
the  grader  considers  these  properties  in  detail,  and  also  in- 
cludes properties  such  as  the  perfection  of  the  leaves,  whether 
they  are  torn,  worm-eaten,  bruised,  or  damaged  from  contact 
with  the  soil,  their  shape,  thickness  and  length,  and  the  part 
of  the  stalk  from  which  they  are  stripped. 

The  following  classification  of  the  type  known  as  bright 
yellow  leaf  when  sold  in  the  I/anville,  Virginia,  market  may 
be  regarded  as  typical : 

Wrappers.— 1.  Common  wrappers :  lowest  grade  of  wrapper 
and  only  a  grade  above  a  bright  filler.  2.  Medium  wrapper: 
not  uniform  in  color,  dingy,  or  piebald,  but  of  good  form  and 
quality.  3.  Good  wrapper :  tobacco  of  heavy  body,  orange  color, 
generally  styled  mahogany.  4.  Fine  wrapper :  second  grade  of 
lemon  color,  but  inferior  to  the  fancy.  5.  Fancy  wrapper :  fine, 
delicate  fiber,  silky,  fresh  lemon  color,  very  leafy,  perfect  leaves', 
and  the  highest  class  made  in  assorting. 

Fillers.—l.  Common:  all  of  the  inferior  and  nondescript 
grades.  2.  Medium :  good,  rich  lugs,  and  the  dark  leaves  with 
good  body.  3.  Good:  tips,  and  the  better  and  brighter  heavy 
lugs  and  short  leaves  with  body.  4.  Fine:  all  the  brightest, 
best  and  richest  leaves  next  below  common  wrapper,  and  gen- 
erally  of  a  gray  and  cherry-red  color. 

*Chap.  xi,  p.  223. 


COMMERCIAL  INSPECTION  AND  GRADING    291 

Smokers. — 1.  Lowest  grade:  worm-eaten  and  discolored.  2. 
Brown  and  short  leaves.  3.  Grade  above  four,  and  not  so 
colory.  4.  Best  smooth  lugs,  which  make  the  highest  class  of 
smokers. 

Cutters. — 1.  Thin,  papery  leaves,  thrown  out  from  fine 
fillers  when  assorting;  lowest  grade.  2.  Same  grade  as  three, 
but  not  so  colory.  3.  Fine  cutters,  leafy  and  inferior  leaves 
taken  from  stalk  that  produced  the  best  wrappers. 

The  number  of  grades  differ  widely  for  the  various  types 
of  leaf  tobacco  produced  and  in  different  growing  districts 
and  markets.  The  grading  may,  moreover,  be  performed  by 
different  individuals — by  the  grower,  the  packer,  jobber,  ex- 
porter, public  inspector,  warehouseman  or  commissionman. 
It  may  be  done  by  the  grower  in  the  first  instance,  later  to  be 
regraded  by  packers  or  other  leaf  buyers,  and  it  may  also  be 
sold  by  the  grower  in  the  ungraded  condition,  later  to  be  pre- 
pared, graded  and  packed  by  the  buyers  in  such  manner  as 
they  prefer  or  as  their  market  requires. 


BIBLIOGRAPHY 

CowEN,  W.  S.    "Grain  Inspection  in  Illinois,"  The  Annals  of 

the  American  Academy  of  Political  and  Social  Science 

(Sept.,  1911),  pp.  78-90. 
KiLLEBREW,  J.  B.,  and  Myrick,  H.    Tobacco  Leaf  (1906). 
KiLLEBREw,  J.  p.     "Tobacco  Districts  and  Types,"  Bureau  of 

Statistics    (Department    of    Agriculture),    Circular    18 

(1909). 

Marsh,  A.  R.  "Cotton  Exchanges  and  Their  Economic  Func- 
tions," The  Annals  of  the  American  Academy  of  Politi- 
cal and  Social  Science  (Sept.,  1911),  pp.  252-280. 

Merrill,  J.  C.  Classification  of  Grain  into  Grades  in  The 
Annals  of  the  American  Academy  of  Political  and  So- 
cial Science  (Sept.,  1911),  pp.  58-77. 

Waugh,  F.  a.  Fruit  Harvesting,  Sorting  and  Marketing 
(1908). 

Illinois  Public  Utihties   Commission:     Rules   Governing  the 
Inspection  of  Grain  in  the  State  of  Illinois,  July  1 
1914  (1914).  ' 

United   States  Bureau  of  Corporations:     Cotton  Exchanges 
Part  I  (1908).  ' 


X 


T 


292 


AGRICULTtTBAL  COMMERCE 


h?< 


TJnited  States  Bureau  of  Corporations:     The  Beef  Industry 

(1905). 
United  States  Bureau  of  Plant  Industry:     The  Classification 

and  Grading  of  Cotton,  Farmers'  Bulletin  No.  691  (July 

10,  1914). 
United  States  Bureau  of  Labor  Statistics:     Wheat  and  Flour 

from  Farmer  to  Consumer,  Bulletin  No.  130  (1914). 
United  States  Tariff  Board:     Wool  and  Wool  Manufactures 

(1912). 
Textile  Manufacturers'  Journal  (May  9,  1914),  pp.  77-79;  Ihid. 

(May  2,  1914). 
Grading  rules  of  leading  grain  and  produce  exchanges  (1913). 
Grain,  cotton,  livestock,  textile,  tobacco,  dairy,  fruit  and  gen- 
eral agricultural  trade  journals. 
Rules  of  New  York  and  New  Orleans  cotton  exchanges  (1914). 
United  States  Cotton  Futures  Act  (Aug.  18,  1914). 
United  States  Standard  Apple  Grading  Act  (Aug.  3,  1912). 


m. . 


CHAPTER   XIV 
COLLECTION  AND   DISSEMINATION   OF   CEOP   EEPORTS 

A  highly  important  part  of  the  organization  of  American 
commerce,  particularly  of  that  phase  which  deals  with  the 
sale  and  distribution  of  the  agricultural  staples,  is  the  ex- 
tensive machinery  which  has  been  developed  for  the  collection 
and  dissemination  of  crop  reports.  Carriers  may  be  provided 
to  transport  the  crops  to  market;  local,  central  and  retail 
markets,  elevators  and  warehouses,  exchanges  and  other  mar- 
ket places  to  facilitate  their  storage,  preparation  and  sale ;  but 
without  authentic  current  trade  information  the  machinery 
of  distribution  could  not  but  operate  in  a  haphazard  manner, 
and  prices  would  seldom,  if  ever,  be  such  as  the  actual  or  prob- 
able supply  and  demand  naturally  warrant. 

From  the  standpoint  of  their  sources,  crop  reports  may 
be  divided  into  two  groups:  (1)  those  issued  by  the  federal 
and  state  governments,  and  (2)  those  issued  by  private  or- 
ganizations. The  former  include  the  reports  published  by  the 
United  States  Department  of  Agriculture  and  the  Census 
Office,  and  the  latter  those  issued  by  certain  trade  journals, 
exchanges  and  private  statistical  organizations.  In  addition 
to  these  public  crop  reports,  there  are  many  strictly  private 
reports  which  are  obtained  by  large  dealers,  speculators  or 
others,  either  directly  or  through  private  statistical  sources, 
but,  although  such  reports  may  at  times  exert  a  wide  influence 
upon  prices,  they  are  not  available  to  the  multitude  of  pro- 
ducers, dealers  and  consumers  who  obtain  much  of  their  cur- 
rent trade  information  from  such  crop  reports  as  are  publicly 
issued. 


293 


I 


i 


i 

fi 


294 


AGKICULTTJEAL  COMMERCE 


Government  Crop  Reports 


Purpose  of  Government  Crop  Reports. — As  early  as  1863 
when  the  Department  of  Agriculture  first  appointed  a  stat- 
istician for  the  collection  of  agricultural  statistics,  and  1865 
when  the  first  appropriation  of  $20,000  for  the  express  pur- 
pose of  issuixig  crop  reports  was  made,  it  was  felt  that  there 
was  a  distinct  need  for  systematically  collected  crop  informa- 
tion and  reports.  Even  prior  to  1863 — during  the  period 
1839  to  1862 — certain  crop  statistics  had  been  collected  in  the 
United  States  Patent  Office.  The  crop-reporting  service  of 
the  Department  of  Agriculture  was  for  many  years  conducted 
by  the  Bureau  of  Statistics  with  an  annual  appropriation  of 
about  $225,000.  Since  June,  1914,  it  has  been  conducted  by 
the  Bureau  of  Crop  Estimates,  the  appropriation  for  the  fiscal 
year  1915  being  $275,580.  In  justification  of  this  expendi- 
ture the  department  points  to  the  following  purposes  of  its 
crop-reporting  service : 

1.  To  provide  reliable  information  to  producers,  con- 
sumers and  dealers  as  to  actual  yields  and  conditions  of  crops 
outside  of  their  own  immediate  community. 

2.  To  enable  market  centers  to  better  balance  supply 
against  demand  in  defining  what  prices  are  warranted  by 
natural  conditions. 

3.  To  insure  stability  to  the  extent  that  it  is  permitted 
by  natural  conditions. 

4.  To  insure  so  certain  an  estimate  that  interested  parties 
cannot  discredit  or  swamp  the  government  reports  with  their 
own  private  estimates. 

5.  To  enable  producers  to  know  the  facts  as  to  the  prom- 
ise of  prices  so  that  they  may  not  be  led  to  sell  at  prices 
wrongfully  quoted  too  low. 

6.  To  create  confidence  and  certainty  in  general  business 
conditions,  to  the  extent  that  such  conditions  are  influenced 
by  the  country's  crops. 

7.  To  insure  reports  so  frequently .  and  so  sbon  after 
changes  have  occurred  in  crop  conditions  or  yields  that  specu' 
lative  uncertainty  may  be  reduced  to  a  minimum. 


DISSEMINATION  OF  CROP  REPORTS 


295- 


8.  To  provide  information  which  will  be  of  use  to  the 
carriers  in  the  distribution  of  freight  equipment  before  and 
during  the  crop-moving  seasons. 

9.  To  assist  farm  implement,  hardware  and  other  manu- 
facturers, and  wholesale,  jobbing,  and  retail  merchants  in  so 
far  as  the  production  and  distribution  of  their  wares  may  de- 
pend upon  the  farming  population. 

Organization  of  Crop-reporting  Service  of  Department  of 
Agriculture. — The  value  of  the  crop-reporting  service  lies 
chiefly  in  the  vastness  of  its  sources  of  information,  the  disin- 
terested character  of  the  Bureau  of  Crop  Estimates,  and  the 
frequency  and  promptness  with  which  the  crop  reports  are 
issued.  A  brief  outline  of  the  organization  and  methods  of 
the  service  will  serve  to  show  why  its  crop  reports,  although 
admittedly  but  estimates,  are  eagerly  awaited  by  the  agricul- 
tural trades  and  exert  a  widespread  influence  on  the  price  of 
the  agricultural  staples. 

The  monthly  estimates  of  the  bureau  are  based  upon  re- 
ports received  from  a  huge  number  of  correspondents  located 
in  all  the  farming  and  agricultural  trade  communities  of  the 
United  States,  and  upon  a  smaller  number  of  expert  reports 
received  from  special  field  and  state  statistical  agents.  Its 
sources  of  crop  information  may  be  classified  as  follows :  ^ 

1.  Reports  are  received  from  about  32,000  township  cor* 
respondents,  who  are  farmers  residing  in  the  farming  town- 
ships throughout  the  country.  Their  reports  are  made  vol- 
untarily and  without  pay  on  printed  blanks  mailed  to  them  by 
the  Bureau  of  Crop  Estimates. 

2.  Similar  voluntary  reports  are  received  from  about 
2,800  principal  county  correspondents,  who  differ  from  the 
former  in  that  they  report  for  an  entire  county  instead  of 
their  immediate  vicinity  or  township.  They  make  their  re- 
port on  printed  blanks  such  as  are  shown  in  Forms  No.  36 
and  37  and  obtain  their  information  from  personal  observa- 
tion and  from  voluntary  reports  received  from  two  to  four  so- 
called  "county  aids"  or  assistants. 

*  U.  S.  Bureau  of  Crop  Estimates,  Government  Crop  Eeports,  Cir- 
cular 17,  revised,  pp.  14-15. 


296 


AGRICULTURAL  COMMERCE 


f 

% 


1' 


■I  -it 


i    E 


3.     The  Bureau  sends  special  blanks  to  a  large  list  of 
special  correspondents  who  are  not  necessarily  farmers  but 
who  are  nevertheless  in  a  position  to  furnish  valuable  infor- 
mation.    Thus  in  the  grain  trade  it  sends  blanks  requesting 
information  on  particular  matters  to  about  30,000  millers 
elevatormen  and  warehousemen,  grain  dealers  and  grain  car- 
riers, and  in  the  cotton  trade  it  similarly  requests  information 
from  over  25,000  ginneries,  15,000  bankers,  merchants,  fac- 
tors, exporters  and  other  buyers,  warehousemen,  southern  cot- 
ton  mills,  and  railroad  agents.    In  making  estimates  of  cotton 
yields,  moreover,  blanks  requesting  a  statement  of  the  amount 
ot  their  own  particular  output  are  sent  direct  to  over  84  000 
cotton  growers.  ' 

4.  The  bureau  regularly  receives  reports  from  a  limited 
number  of  special  field  agents  who  are  crop  experts  and  are 
salaried  employees  of  the  government.  Each  of  them  travels 
throughout  the  farming  district  in  which  he  is  stationed, 
receives  reports  from  correspondents  on  special  blanks  pro- 
vided for  ihat  purpose,  and  at  stated  times  sends  expert  re- 
ports to  the  bureau  separately  for  each  state  located  within 
ills  reporting  district. 

5      The  bureau  also  receives  reports  from  so-called  state 
statistical  agents  of  whom  there  is  one  for  each  state  or  ^up 
of  smaller  states.     They  are  persons  who  devote  a  part  of 
their  time  for  a  small  salary  of  from  $300  to  $1,100  per  year 
to  reporting  for  each  state  as  a  whole  the  same  information  as 
is  asked  of  township  and  county  correspondents.     They  re- 
ceive reports  from  about  15,000  voluntary  local  correspondents 
to  whom  they  mail  printed  blanks,  and  they  send  the  average 
for  each  state  to  the  bureau  as  an  independent  estimate. 
Those  m  the  larger  states  divide  their  state  into  about  nine 
sections  for  each  of  which  they  compute  a  straight  average, 
and  then  compute  a  weighted  average  for  the  entire  state  by 
assigning  to  each  section  a  weight  proportionate  to  its  relative 
importance. 

As  the  reports  of  township,  county  and  special  correspon- 
dents are  received  by  the  Bureau  of  Crop  Estimates  they  are 
tabulated  on  large  sheets  so  as  to  make  them  available  to  the 


DISSEMINATION  OF  CROP  REPORTS 


297 


Crop  Reporting  Board  which  makes  the  final  estimates.  In 
order  to  prevent  a  clerk  from  obtaining  advance  knowledge  as 
to  any  particular  state  each  sheet  before  the  figures  are  added 
and  averaged  is  cut  into  two  parts  so  that  no  names  or  marks 
indicating  the  state  to  which  the  estimates  belong  remain, 
and  the  part  containing  the  names  of  the  counties  and  state  is 
kept  in  a  locked  drawer  by  the  chief  of  division.  The  reports 
from  the  special  field  agents  and  state  statistical  agents,  which 
are  of  particular  importance,  are  mailed  to  the  Secretary  of 
Agriculture  in  special  envelopes  or  telegraphed  to  him  in 
cipher  to  be  kept  in  a  locked  safe  until  the  morning  of  the 
report.  The  Crop  Reporting  Board  before  which  all  the 
necessary  information  concerning  the  speculative  crops  is 
finally  placed  consists  of  five  experts  including  the  Chief  of 
the  Bureau  who  is  the  permanent  chairman  and  four  others 
who  differ  from  month  to  month.  The  board  works  in  a 
locked  room  having  no  telephone  or  bther  outside  connection, 
and  the  final  results  are  given  simultaneously  to  the  telegraph 
companies,  reporters  and  all  applicants  to  be  conveyed  to  the 
exchanges,  the  press  and  to  all  interested  parties.  As  is  stated 
by  one  of  the  statisticians  of  the  crop-reporting  service  :^    • 

When  the  board  has  assembled,  the  reports  regarding  the 
speculative  crops  from  state  and  field  agents  are  delivered 
by  the  Secretary,  opened  and  tabulated.  The  figures  by  states, 
from  the  several  classes  of  correspondents  and  agents,  are  placed 
in  convenient  parallel  columns,  a  separate  sheet  being  used 
for  each  separate  crop  or  question.  The  board  is  thus  provided 
with  several  estimates  for  each  state  and  each  crop,  made  inde- 
pendently by  the  respective  classes  of  correspondents  and  agents 
of  the  bureau.  Notes  and  comments  of  agents  and  weather  re- 
ports are  read.  With  all  these  data  before  the  board,  each  in- 
dividual member  computes  independently,  on  a  separate  sheet, 
or  final  computation  slip,  his  own  estimate  of  the  acreage,  con- 
dition, yield,  or  whatever  subject  is  being  considered.  The 
results  obtained  by  each  member  are  brought  together  and 
compared,  state  by  state,  and  discussed  by  the  board  under  the 

*N.  C  Murray:  *'The  Crop  Reporting  System,*'  The  Annals  of 
the  American  Academy  of  Political  and  Social  Science,  Sept.,  1911,  p. 
98. 


298 


AGRICULTURAL  COMMERCE 


supervision  of  the  chairman,  and  the  final  figures  for  each  state 
decided  upon.  The  estimates  by  states,  as  finally  determined 
by  the  board,  are  weighted  by  figures  proportionate  to  thei 
relative  importance,  the  results  being  a  true  weighted  average 
for  the  United  States  for  each  subject.  Other  crops  than  wheat, 
corn,  oats,  and  cotton  are  prepared  in  the  same  way  except  that 
the  entire  board  does  not  review  them. 

As  quickly  as  the  board  determines  upon  the  final  figures 
by  states  and  the  averages  for  the  United  States  have  been 
obtained  by  expert  computers,  a  summary  is  set  up  on  a  dupli- 
cating machine,  and  copies  of  the  summary  are  given  to  the 
public. 

m 

About  two  thousand  copies  of  the  summarized  estimates 
are  immediately  mailed  to  newspapers  and  organized  bodies 
interested  in  the  crop  reports.  The  final  estimates  are  also 
immediately  telegraphed  to  the  Weather  Bureau  station  di- 
rector of  each  state,  who  has  copies  printed  and'  mailed  to  all 
the  local  newspapers  in  the  state.  The  details  of  the  crop  re- 
ports are,  however,  published  a  little  later  in  a  bulletin  known 
as  "The  Monthly  Crop  Reporf  ^  which  is  mailed  gratis  to  any 
person  upon  request.^ 

Scope  of  Crop  Reports  of  Department  of  Agriculture. 
—The  crop  reports  cover  a  wide  variety  of  information,  the 
nature  of  which  naturally  varies  in  different  seasons  of  the 
year.    The  principal  returns,  however,  are  those  relating  to : 

1.  The  acreage  planted,  which  is  stated  by  the  bureau  in 
terms  of  acres,  but  is  computed  from  the  estimated  percen- 
tages reported  by  its  agents  and  correspondents,  the  per- 
centages representing  increases  or  decreases  as  compared  with 
the  previous  year. 

2.  The  condition  of  the  crops,  which  is  reported  alike  by 
the  bureau  and  its  agents  and  correspondents  in  percentages 
based  upon  a  normal  crop  of  100  per  cent. 

3.  The  yield  per  acre,  which  is  reported  alike  by  the 
bureau  and  its  agents  and  correspondents  in  terms  of  bushels, 
pounds  or  other  units  of  quantity  per  acre. 

^f,   '  ^''^!'^V^^t.^^}f  bulletin  was  known  as  the  '^Crop  Reporter,'' 
Outioo?'  ^^'  ^^^^'  "^  ""^^  ^"^""^  ^'  ''The  Agricultu;al 


DISSEMINATION  OF  CROP  REPORTS 


299 


4.  The  total  production,  which  is  computed  by  multiply- 
ing the  estimated  yield  per  acre  by  the  estimate  acreage. 

5.  The  average  prices  per  bushel,  pound  or  other  unit  re- 
ceived by  producers,  which  are  compiled  by  the  bureau  from 
special  reports  received  from  its  agents  and  correspondents. 

6.  The  total  farm  value  of  given  crops,  which  is  com- 
puted by  multiplying  the  estimated  production  by  the  esti- 
mated average  prices. 

7.  The  stocks  on  hand  at  given  times,  which  are  com- 
puted by  the  bureau  from  the  reports  received  from  its  agents 
and  correspondents  who  report  this  information  in  estimated 
percentages  of  the  total  crop  harvested. 

8.  The  amounts  shipped  out  of  the  county  of  production, 
which  are  computed  in  the  same  manner  as  the  stocks  on 
hand,  and  which  indicate  the  estimated  volume  of  grain, 
cotton  or  other  crops  reaching  the  country's  markets. 

The  reports  dealing  with  wheat,  corn,  oats  and  cotton  are 
issued  in  greatest  detail  and  with  the  strictest  regularity,  but 
the  crop-reporting  service  also  covers  a  multitude  of  other 
farm  commodities  such  as  barley,  rye,  buckwheat,  flaxseed, 
peas,  rice,  tobacco,  grass  seeds,  potatoes,  sweet  potatoes,  beet 
and  cane  sugar,  cattle,  hogs,  sheep,  horses  and  other  livestock, 
hay,  wool,  and  to  a  more  limited  extent  fruits  and  vegetables. 

The  crop  reports  of  the  Bureau  of  Crop  Estimates  are 
supplemented  by  the  reports  of  the  Weather  Bureau,  which 
is  also  in  the  Department  of  Agriculture.  The  Monthly 
Weather  Review  of  this  bureau  contains  concise  statements  as 
to  the  weather  conditions  throughout  the  crop-growing  dis- 
tricts, the  damage  resulting  from  drought,  excessive  rainfall, 
frost  and  like  conditions,  temperature  and  precipitation  with 
departure  from  normal  values,  etc.,  and  at  times  exerts  im- 
portant effects  upon  the  prices  of  the  agricultural  staples. 

Returns  of  "United  States  Census  Office. — Since  the  crop 
reports  of  the  Department  of  Agriculture  are  based  upon  the 
judgments  and  opinions  of  its  agents  and  correspondents  the 
statistics  contained  in  them,  although  of  great  value,  are  but 
estimates.  It  is  desirable,  therefore,  that  certain  of  its  re- 
turns, particularly  those  concerning  production  and  acreage. 


■f 


300 


AGKICULTUKAL  COMMERCE 


jii 


4 


i 


' 


should  occasionally  be  checked  up  by  an  actual  canvass.  This 
IS  done  by  the  Census  Office,  the  returns  of  which  are  accepted 
by  the  Bureau  of  Crop  Estimates  as  a  basis  for  revising  its 
estimates. 

The  Census  Office  is  especially  active  in  reporting  the  cot- 
ton crop:     (1)  Beginning  in  June,  it  reports  the  estimated 
cotton  acreage  as  of  May  25th.     (2)  Thereafter  it  issues  ten 
prehmmary  bi-monthly,  reports  of  the  cotton  ginned  to  speci- 
fied dates.     (3)  It  issues  monthly  reports  of  cotton  consumed, 
imported,  exported  and  on  hand  and  of  the  number  of  active 
cotton  spindles,  and  (4)  three  reports  of  cotton-seed  crushed 
and  Imters  produced.     (5)   In  an  annual  bulletin  entitled 
"Cotton  Production'^  it  reports  in  detail  the  total  output  of 
cotton  and  linters  in  the  United  States  as  reported  by  ginners 
and  delinters,  the  total  output  of  foreign  cotton-producing 
countries,  and  the  consumption,  exports,  imports  and  stock  of 
cotton  in  the  United  States  for  specified  periods.    (6)  It  also 
issues  an  annual  bulletin  entitled  "Supply  and  Distribution 
of  Cotton''  showing  the  total  supply  of  cotton  in  the  United 
States  for  the  year  ending  August  thirty-first  and  its  distribu- 
tion, together  with  statistics  of  spindles,  consumption,  stocks 
on  hand,  imports  and  exports,  and  certain  statistics  of  spindles 
and  cotton  consumption  and  textile  fiber  production  in  foreign 
countries.    The  census  returns  are  obtained  mainly  by  actual 
canvass  of  the  ginneries,  delinters,  dealers  and  merchants, 
warehousemen,  cotton  mills  and  other  concerns  handling  cot- 
ton, each  reporting  on  the  volume  of  its  own  business.    The 
returns  of  exports  and  imports  used  in  its  reports  on  supply 
and  distribution  are,  however,  compiled  from  reports  of  the 
Bureau  of  Foreign  and  Domestic  Commerce  of  the  Department 
of  Commerce  which  obtains  them  from  the  customs  records. 
Once  in  each  decade  the  Census  Office  also  makes  a  canvass 
of  other  agricultural  crops,  reporting  for  each  a  detailed  state- 
ment of  acreage,  production,  total  farm  value,  average  yield 
per  acre,  average  farm  value  per  bushel  or  other  unit  of  quan- 
tity, and  in  some  instances  additional  information.     These 
census  returns,  particularly  those  of  acreage  and  production, 
serve  as  a  check  upon  the  current  crop  reports  of  the  Depart- 


DISSEMINATION  OF  CROP  REPORTS  301 

ment  of  Agriculture,  and  are  used  by  that  department  as  a 
means  of  periodically  revising  its  estimates. 

United  States  Bureau  of  Foreign  and  Domestic  Commerce. 
—The  official  returns  of  the  exports  and  imports  of  farm 
products— their  value,  volume,  ports  of  shipment  and  receipt, 
countries  to  which  exported  and  from  which  imported— are 
annually  compiled  and  published  in  the  United  States  Com- 
merce and  Navigation  Report  by  the  .Bureau  of  Foreign  and 
Domestic  Commerce  of  the  Department  of  Commerce.  This 
bureau  also  publishes  less  detailed  monthly  returns  of  exports 
and  imports  in  the  Monthly  Summary  of  Commerce  and 
Finance.  Its  reports  are  compiled  from  the  records  of  the 
United  States  Customs  Office  of  the  Treasury  Department. 

State  Reports.— The  departments,  bureaus,  boards  or  com- 
missioners of  agriculture,  horticulture  or  dairying  of  many 
of  the  principal  farming  states  compile  and  publish  statistics 
of  the  agricultural  industries  within  particular  states.  Their 
reports,  however,  are  usually  annual,  and  their  scope  is  in 
most  cases  limited  to  acreage,  crop  production,  livestock  on 
farms,  production  of  dairy  products  or  other  annual  returns. 
The  grain  inspection  departments,  warehouse  registrars, 
railroad  and  warehouse  commissions  or  public  service  com- 
missions of  some  of  the  western  agricultural  states  also  pub- 
lish annual  reports  showing  the  number  of  cars  or  amount  of 
grain  publicly  inspected,  the  receipts  and  shipments  of  grain 
to  and  from  elevators  and  central  grain  markets,  and  other 
data  arising  in  connection  with  their  supervision  of  the  grain 
trade. 

Crop  Reports  of  Private  Organizations 

The  Visible  Supply. — Among  the  most  important  pri- 
vately collected  crop  statistics  are  those  concerning  the  "vis- 
ible supply"  of  cotton  and  the  cereals,  i.  e.,  the  stocks  of 
cotton  and  grain  which  have  gone  out  of  the  hands  of  the 
producers  and  are  in  elevators,  warehouses,  vessels  or  other 
places  where  they  are  available  for  commercial  purposes.  The 
visible  supply  is  of  vast  importance  between  harvesting  sea- 


i 


!i 


302 


AGRICULTURAL  COMMERCE 


sons  for  it  then  constitutes  the  principal  basis  of  the  cotton 
and  grain  trades.  The  visible  supply  is  due  to  various  causes 
and  performs  the  following  important  functions : 

1.  Many  growers  because  of  inability  to  handle  or  finance 
their  crop  or  for  other  reasons  sell  the  bulk  of  their  grain  and 
cotton  during  or  shortly  after  the  harvesting  season. 

2.  The  competition  existing  between  primary  markets 
and  points  of  concentration  tend  to  draw  grain  and  cotton 
from  the  farms  and  local  markets. 

3.  Central  elevators  and  warehousemen  usually  desire 
their  elevators  and  warehouses  to  be  filled,  and  the  existence 
of  these  storage  places  makes  possible  a  large  visible  supply. 

4.  Future  trading  is  particularly  dependent  upon  the 
visible  supply. 

5.  The  visible  supply  strengthens  the  consumers'  posi- 
tions, by  assuring  them  that  certain  quantities  of  cotton  or 
grain  are  available  to  satisfy  their  needs. 

Visible  supply  returns  are  collected  mainly  by  some  of  the 
large  commercial  journals  through  correspondents  stationed 
at  all  the  principal  points  of  accumulation,  and  are  currently 
compiled  and  published  by  them.  The  visible  supply  of  cotton 
on  August  28,  1914,  for  example,  was  reported  by  the  Com- 
mercial  and  Financial  Chronicle  as  is  shown  on  page  303. 

Other  Privately  Collected  Crop  Information.— Various 
trade  journals  similarly  collect  and  publish  current  statements 
showing  the  concentration  of  cotton  and  grain  at  interior 
points  and  seaboard  ports,  their  shipment  over  various  routes, 
their  exportation  and  home  consumption  and  other  items 
showing  their  movement  and  distribution.  Some  likewise 
maintain  corps  of  correspondents  or  otherwise  estimate  statis- 
tics of  acreage,  condition,  and  production  similar  to  those  col- 
lected by  the  Department  of  Agriculture,  the  private  com- 
pilations often  anticipating  the  government  crop  reports.^ 

Some  of  the  large  cotton  and  grain  exchanges  also  are  im- 

*Some  of  the  principal  journals  and  newspapers  collecting  crop 
reports  are  the  New  York  Journal  of  Commerce,  The  New  York  Com- 
mercial, the  Financial  and  Commercial  Chronicle,  Bradstreet^s,  and 
The  New  Orleans  Times-DemocraU 


DISSEMINATION  OF  CROP  REPORTS  303 


The  visible  supply  of  cotton  tonight,  as  made  up  by  cable  and  telegraph,  is  as 
foUows  F^regn  stocks,  as  well  as  the  afloat,  are  this  week's  returns,  and  consequently 
iSl  foreign  figures  are  brought  down  to  Thursday  evening.  But  to  make  the  total  the 
Complete  figures  for  tonight  (Friday),  we  add  the  item  of  exports  from  the  Umted 
States,  including  in  it  the  exports  of  Fnday  only. 


August  28 

Stock  at  Liverpool bales 

Stock  at  London 

Stock  at  Manchester 


Total  Great  Britain . 

Stock  at  Hamburg 

Stock  at  Bremen 

Stock  at  Havre 

Stock  at  Marseilles ... 
Stock  at  Barcelona  — 

Stock  at  Genoa 

Stock  at  Trieste 


Total  Continental  stocks , 


Total  European  stocks 

India  cotton  afloat  for  Europe 

Amer.  cotton  afloat  for  Europe  .... 
Egypt,  Brazil,  &c.,  afloat  for  Europe. 

Stock  in  Alexandria.  Egypt 

Stock  in  Bombay.  India 

Stock  in  U.  S.  ports 

Stock  in  U.  S.  interior  towns 

U.  S.  exports  today 


1914 


890.000 

5.000 

65.000 


960.000 

♦29.000 

*240.000 

230.000 

4.000 

*25,000 

21,000 

*40.000 


589,000 


1,549.000 
170.000 
23,773 
19.000 
*88,000 
686.000 
224.459 
116,469 


Total  visible  supply. 


2,876.701 


1913 


573,000 

5.000 

26,000 


604.000 

17,000 

105.000 

82.000 

3.000 

15.000 

9.000 

17,000 


248,000 


852,000 

89.000 

92.850 

32,000 

65,000 

594,000 

205,634 

109,328 

10,497 


2,050,309 


1912 


600,000 
11,000 
73,000 


684,000 

10,000 

213,000 

100,000 

2,000 

16.000 

14.000 

10.000 


365.000 


1,049.000 

67.000 

113.059 

31.000 

32.000 

454.000 

284.819 

93.881 

826 


2.126,585 


Of  the  above,  totals  of  American  and  other  descriptions  are  as  follows: 


1911 


443,000 
12,000 
27.000 


482.000 
14,000 
28,000 
56,000 

2,000 
17,000 
16,000 

7,000 


140,000 


622,000 

33.000 

170.656 

21.000 

42,000 

426,000 

196.898 

102.226 

52,947 


1,662,727 


American 

Liverpool  stock. .bales 

Manchester  stock 

Continental  stock 

American  afloat  for  Europe 

U.  S.  port  stocks 

U.  S.  interior  stocks 

U.  S.  exports  today 


Total  American 

East  Indian,  Brazil,  &c. 

Liverpool  stock 

London  stock 

Manchester  stock 

Continental  stock 

India  afloat  for  Europe 

Egypt,  Brazil  &c..  afloat 

Stock  in  Alexandria.  Egypt 

Stock  in  Bombay,  India 


Total  East  India,  &c . 
Total  American , 


Total  visible  supply. 


1914 


602,000 

46,000 

♦450,000 

23,773 

224,459 

116,469 


1,462,701 

288,000 

5,000 

19,000 

♦139,000 

170,000 

19,000 

♦88,000 

686,000 


1,414,000 
1,462,701 


2,876,701 


1913 


376,000 
15,000 

203,000 
92,850 

205,634 

109,328 
10,497 


1.012,309 

197,000 
5,000 
11,000 
45,000 
89,000 
.32,000 
65,000 

594,000 


1,038,000 
1,012,309 


2.050.309 


1912 


472.000 

56.000 

336,000 

113,059 

285,819 

93.881 

826 


1,357.585 

128,000 
11,000 
17,000 
29,000 
67,000 
31.000 
32.000 

454.000 


769.000 
1.357.585 


2,126,585 


1911 


259,000 

16,000 

94,000 

170,656 

196.898 

102,226 

52,947 


891.727 

184.000 
12.000 
11,000 
46,000 
33,000 
21,000 
42,000 

422,000 


771,000 
891.727 


1,662,727 


•  JE^timated 


304 


I 


•  ! 


I 

')  ft 


1 


AGRICULTURAL  COMMERCE 


The  visible  supply  of  American  and  Canadian  Grain  on 
August  22d,  1914,  was  similarly  reported  in  the  following 
form : 


The  visible  supply  of  grain,  comprising  the  stocks  in  granary  at  principal 
m  accumulation  at  lake  and  seaboard  ports  August  22,  1914,  was  as  follows: 


points 


UNITED  STATES  GRAIN  STOCKS 

Amer. 

Wheat 

bush. 

Bonded 
Wheat 
bush. 

Amer. 
Corn 
bush. 

Amer. 
Oats 
biish. 

Bonded 
Oats 
bush. 

Amer. 

Rye 

bush. 

Amer. 

Barley 

bush. 

Bonded 
Barley 
biLsh. 

'  In  Thousands 

New  York 

Boston 

1,698 

348 

1,292 

2.697 

2.932 

2.545 

1,133 

1.139 

329 

6,268 

447 

152 

422 

1,265 

3.233 

4,379 

18 

777 

860 

895 

198 

34 
"32 

"ioi 

"17 

27 

5 

46 

14 

86 

10 

164 

68 

75 

448 

288 

42 

""2 

49 

167 

36 

118 

258 

284 

9 

472 

3 

221 

278 
195 

V.sie 
755 

314 

10.311 

223 

349 

54 

378 

280 

231 

1.559 

543 

1.044 

277 

87 

33 

"io 

21 
2 

"**8 

•   ■   •   •   • 

5 

3 

12 

49 

•••5 

39 

8 

"22 
5 

■■"3 

89 

1 

""2 

"ios 

"'36 
"iso 

239 
133 

"*22 


Philadelphia .... 

Baltimore 

New  Orleans... . 

Galveston 

Buffalo 

Toledo 

Detroit 

Chicago 

afloat. . 

Milwaukee 

Duluth 

'•j 

Minneapolis 

St.  Louis 

Kansas  City .... 
Peoria 

Indianapolis .... 
Omaha 

:::::i 

On  Lakes 

On  Canal  &  River 

Totals: 

Aug.  22  1914 
Aug.  15  1914 
Aug.  23  1913 
Aug.  24  1912 

33,027 
33.885 
44,689 
18,663 

187 

338 

760 

1,185 

2,196 
2,070 
2.617 
1.573 

18,890 

15.593 

22,500 

3,151 

43 

67 

447 

66 

180 
183 
691 

288 

801 

880 

1,454 

475 

7 

7 

83 
1 

CANADIAN  GRAIN  STOCKS 


Can'd'n 

Wheat 

bush. 

Bonded 
Wheat 
bush. 

Can'd'n 
Corn 
bush. 

Can'd'n 
Oats 
bush. 

Bonded 
Oats 
bush. 

Can'd'n 

Rye 

bush. 

Can'd'n 
Barley 
bush. 

Bonded 
Barley 
bxish. 

< '  In  Thousands 

Montreal 

Ft.  WilUam  &  Pt. 

Arthur 

Other  Canadian . 

4,733 

1,161 
2,457 

38 

470 

102 
880 

23 

12s 

Totals: 

Aug.  22  1914 
Aug.  15  1914 
Aug.  23  1913 
Aug.  24  1912 

8,351 

10,010 

4,001 

5.686 



38 

59 

11 

6 

1,452 
1,926 
6.454 
2,821 

23 
23 
33 

128 

186 

501 

5 

DISSEMINATION  OF  CROP  REPORTS 


305 


SUMMARY 


Wheat 
bush. 

Bonded 

Wheat 

bush. 

Com 
bush. 

Oats 
bush. 

Bonded 
Oats 
bush. 

Rye 
bush. 

Barley 
bush. 

Bonded 

Barley 

bush. 

In  Thousands 

American 

Canadian 

33,027 
8.351 

187 

2,196 
38 

18,890 
1,452 

43 

180 
23 

801 
128 

7' 

Totals: 

Aug.  22  1914 
Aug.  15  1914 
Aug.  23  1913 
Aug.  24  1912 

41,378 
43,895 
48.690 
24,349 

187 

338 

760 

1,185 

2,234 
2,129 
2,628 
1,579 

20,342 

17,519 

28,954 

5,972 

43 

67 

447 

66 

203 

23 

724 

288 

929 
1,066 
1,955 

480 

7 

7 

83 

11 

portant  reporting  agencies.  In  the  cotton  trade  the  annual 
statistical  reports  of  the  secretaries  of  the  New  Orleans  and 
New  York  exchanges,  particularly  those  of  the  former,  consti- 
tute valuable  statements  as  to  the  actual  movement  and  dis- 
tribution of  that  portion  of  the  cotton  crop  which  is  "in 
sight"  up  to  the  time  of  their  issue.  Most  of  the  grain  ex- 
changes, moreover,  compile  and  publish  annual  and  current 
statistics  covering  their  own  dealings  and  the  grain  trade  con- 
ducted at  the  centers  in  which  they  are  situated,  and  some  of 
them  compile  statistics  covering  larger  areas  and  special  items 
such  as  the  visible  supply  and  the  movement  and  distribution 
of  grain. 

Allied  to  the  exchanges  are  important  private  reporting 
organizations,  which  provide  them  with  detailed  current  sta- 
tistics concerning  all  conditions  of  interest  to  the  trade. 
BroomhalFs  Agency,  for  example,  the  reportorial  staff  of 
which  extends  throughout  the  important  grain-growing  coun- 
tries, acts  as  the  reporting  agency  for  all  the  largest  grain 
exchanges  in  the  world.^ 

Various  trade  organizations  such  as  The  National  Wool 
Manufacturers  Association  and  the  Union  Stock  Yards  Com- 
panies of  the  principal  central  livestock  markets,  compile 
valuable  current  statistics  concerning  the  particular  farm 
products  in  which  they  are  interested.     Similar  also  are  the 

^  See  Bruce  D.  Mudgett:  **  Current  Sources  of  Information  in 
Produce  Markets,  *  *  The  Annals  of  the  American  Academy  of  Political 
and  Social  Science,  Sept.,  1911,  pp.  115-118. 


'  m  ' 


I* 


I 


t'ai 


li 


306 


AGRICULTUEAL  COMMERCE 


returns  of  the  larger  growers'  cooperative  marketing  and  ship- 
ping associations  which  obtain  current  reports  of  market  con- 
ditions in  accordance  with  which  they  consign  or  reconsign  the 
products  of  their  members. 

There  are  also  many  commission  and  hroTcerage  houses, 
particularly  in  the  grain  trade,  who  "make  a  practice  of  can- 
vassing the  intelligent  opinion  of  men  located  in  the  grain 
belt  for  the  purpose  of  estimating  the  conditions  of  the  grain, 
the  acreage,  etc.  A  great  many  correspondents  are  in  daily 
communication  with  their  firms  and  are  able  to  inform  the 
latter  of  any  circumstances  of  sufficient  importance  to  justify 
a  special  investigation.^'  * 

Finally  there  are  numerous  private  crop  experts  who  are  in* 
the  employ  of  large  brokerage  or  commission  houses  or  sell 
their  information  to  subscribers.  While  some  of  them  publish 
misleading  reports  for  ulterior  purposes,  others  are  "men  of 
mature  judgment  whose  business  it  is  to  give  disinterested 
and  impartial  advice  on  the  growing  crops  and  whose  opinions 
can  be  depended  upon  to  represent  the  facts  as  they  know 
them.''  1  "^ 

Allied  to  the  crop  statistics  mentioned  above  are  statistics 
of  central  market  prices.  The  departments  of  Agriculture, 
Labor  and  Commerce  publish  various  compilations  of  the 
prices  paid  at  the  central  markets,  but  the  main  sources  of 
current  price  statistics  are  the  exchanges,  trade  journals  and 
daily  newspapers.  The  prices  paid  on  the  large  exchanges 
are  posted  on  bulletins,  sent  broadcast  by  telegraph,  and  regu- 
larly published  by  the  daily  press. 

BIBLIOGRAPHY 

MuDGETT,  Bruce  D.  "Current  Sources  of  Information  in 
Produce  Markets/'  The  Annals  of  the  American  Acad- 
emy of  Political  and  Social  Science  (Sept.,  1911). 

Murray,  N.  C.    "The  Crop  Reporting  System,"  Ibid. 

Secretary  of  New  Orleans  Cotton  Exchange:  Cotton  Crop  of 
United  States  (annual). 


>  Ibid.,  pp.  118-119. 


DISSEMINATION  OF  CROP  REPORTS  307 

Secretary  of  New  York  Cotton  Exchange :    Cotton  Crop  of  the 

United  States  (annual). 
United   States  Bureau  of  Crop  Estimates:     Crop  Reporting 

Systems  and  Sources  of  Crop  Information  in  Foreign 

Countries,  Farmers'  Bulletin  No.  581  (Mar.  18,  1914). 

The  Monthly  Crop  Report  (monthly  since  May,  1915). 

Government    Crop    Reports,    Their   Value,    Scope,    and 

Preparation,  Circular  17,  revised   (Jan.  20,  1915). 
United  States  Census  Office:     Thirteenth  Census  Report  on 

Agriculture,  1910  (1913),  Vol.  5. 
The  Collection  of  Statistics  of  Cotton,  in  BuUetm  No. 

125   (1914),  pp.  69-70. 

Monthly,  bi-monthly  and  annual  reports  on  cotton. 

United   States   Weather  Bureau:     Monthly   Weather  Review 

(monthly). 
BroomhaU's  Agency:     The  Corn  Trade  News   (daily). 
Commercial  and  Financial  Chronicle  (weekly). 
New  Orleans  Times-Democrat  (daily). 
New  York  Commercial  (daily). 
New  York  Journal  of  Commerce  (daily). 

(See  also  statistical  reports  listed  on  pp.  10,  11,  92,  93,  134, 
135,  200,  201,  221,  238,  257.) 


CHAPTER  XV 

THE  INSUEANCE   OF  AGEICULTUEAL  COMMODITIES 

It  is  not  the  purpose  of  this  chapter  to  describe  property 
insurance  as  an  industry,  but  rather  to  outline  the  purposes 
and  extent  to  which  the  agricultural  crops  are  protected  by 
insurance  throughout  their  passage  from  farmer  to  consumer. 
The  fire  and  other  property  insurance  business  as  such — its 
organization,  manner  of  quoting  rates,  etc. — and  the  insur- 
ance of  buildings,  vessels  and  other  trade  facilities,  are  but 
indirectly  related  to  the  trade  in  farm  products  and  have 
been  fully  described  elsewhere.^  The  insurance  of  farm  com- 
modities, however,  holds  a  direct  and  highly  important  posi- 
tion in  commercial  organization,  the  discussion  of  which  may 
be  classified  into  (1)  rural  crop  insurance,  (2)  insurance  as 
the  basis  of  commodity  loans,  (3)  the  insurance  of  stored 
commodities,  (4)  the  insurance  of  commodities  in  mills,  fac- 
tories and  mercantile  establishments,  (5)  the  insurance  of 
commodities  en  route,  and  (6)  insurance  as  the  basis  of 
financial  settlement. 

EuRAL  Crop  Insurance 

Scope, — There  is  much  lack  of  uniformity  among  farmers 
as  regards  the  forms  and  extent  of  insurance  carried  by  them. 
It  is  a  common  practice  for  them  to  insure  their  home,  farm 
buildings,  farm  animals  and  machinery  against  loss  by  fire 
and  lightning,  but  many  neglect  the  insurance  of  their  crops. 
Indeed  there  are  many  risks,  such  as  grain  pests,  frosts  and 
drought,  which  are  seldom  covered  by  insurance  in  the  United 
States  because  of  the  great  severity  of  such  calamities  when- 

^See  S.  S.  Huebner:  ** Property  Insurance*^  and  the  bibliogra- 
phy contained  therein. 

308 


INSURANCE  OF  COMMODITIES 


309 


ever  they  occur  and  the  relative  absence  of  concerns  which 

imderwrite  such  risks. 

The  most  common  form  of  crop  insurance  is  the  insurance 
against  loss  by  fire  and  lightning  of  grain,  cotton,  hay  and 
other  products  after  they  have  been  harvested  and  stored  on 
the  farmer's  premises  or  in  other  local  storage  places.  Many 
farmers,  particularly  the  small  cotton  growers,  seldom  protect 
themselves  in  this  way,  but  the  growers  of  large  crops  as  well 
as  some  of  less  importance  regularly  protect  their  harvested 
crops  until  they  finally  dispose  of  them. 

In  regions  subject  to  heavy  storms  farmers  in  some  cases 
protect  their  buildings  as  well  as  the  crops  stored  in  them  by 
purchasing  tornado,  cyclone,  and  windstorm  insurance.^  Sim- 
ilarly in  the  western  grain  states  farmers  sometimes  protect 
their  crops  against  loss  from  hailstorms  by  taking  out  hail 

insurance  policies. 

Farm  animals  are  frequently  insured  against  loss  from  hre 
and  lightning  in  many  parts  of  the  United  States,  but  m 
those  regions  where  livestock  constitutes  an  important  source 
of  farm  income  livestock  is  also  at  times  insured  against  loss 
from  disease  and  accident.  In  case  of  the  slaughter  by  federal 
or  state  veterinary  inspectors  of  animals  infected  with  con- 
tagious disease  the  owners  are  compensated  jointly  by  the 
federal  and  state  governments,  but  such  compensation  does 
not  overcome  the  need  for  insurance,  because  it  is  based 
merely  upon  the  animal's  value  for  meat  or  other  commercial 
purposes  and  not  upon  the  real  value  of  blooded  stock.  Much 
livestock,  moreover,  is  lost  otherwise  than  by  order  of  public 
veterinary  inspectors,  and  in  the  absence  of  insurance  consti- 
tutes a  complete  loss  to  the  owner. 

Livestock  insurance  in  the  United  States— that  is,  insur- 
ance covering  disease  and  accident— is  provided  mainly  by 
special  mutual  or  regularly  incorporated  livestock  insurance 
companies,  and  has  not  been  developed  on  a  large  scale.    The 

^F  L  Hoffman:  *' Windstorm  and  Tornado  Insurance/'  Spec- 
tator, vol.  Ixvii,  p.  272;  A.  T.  Linnby:  *^  Tornado  Insurance  ''  ch.  65 
in  H.  P.  Dunham:  The  Business  of  Insurance;  G.  H.  Powell:  Coop- 
eration in  Agriculture,  ch.  12. 


310 


AGRICULTURAL  COMMERCE 


I'* 


l: 


policies  issued  usually  protect  the  owner  against  loss  by  death 
from  accident,  disease,  fire,  lightning  and  cyclone,  including 
accidents  such  as  a  'broken  leg  when  found  necessary  by  at- 
tending veterinary  to  destroy  the  animal's  life."     Some  poli- 
cies, however,  specifically  exempt  the  insurance  company  in 
case  of  loss  resulting  from  certain  causes  such  as  fire,  flood, 
inundation,  snowstorm  or  blizzard  unless  otherwise  agreed  in 
a  special  policy  clause  and  additional  premiums  are  paid. 
The  policies,  moreover,  generally  limit  the  insured  value  or 
amount  recoverable  to  one-half  or  two-thirds  of  the  actual 
value  of  the  animals  insured  or  to  fixed  maximum  valuations, 
and  prescribe  a  maximum  age  limit  which  varies  with  the 
kind  of  animal  insured  and  the  length  of  time  during  which 
protection  is  granted.     In  many  instances  the  companies  re- 
fuse to  insure  any  livestock  not  kept  in  fenced-in  pastures  or 
other  mclosures,  thus  eliminating  range  cattle.     In  spite  of 
these  precautions  the  risks  of  livestock  insurance  have  proved 
so  great  that  the  premium  rates  charged  have  deterred  the 
owners  of  common  livestock  from  generally  protecting  them- 
selves with  insurance. 

Livestock  insurance  in  the  United  States  has  thus  far  been 
confined  mainly  to  the  insurance  of  horses  and  valuable 
blooded  cattle.  The  number  of  outstanding  policies  on  com- 
mon dairy  or  beef  cattle  has  always  been  small,  and  common 
sheep  and  hogs  are  seldom  insured  against  loss  from  disease  or 
accident.  Growers  of  "common  stuff-  even  in  case  of  fenced- 
in  stock,  have  depended  mainly  upon  such  protection  as  is 
afforded  by  the  regular  fire  and  lightning  insurance  which 
they  may  carry,  but  relatively  few  insuring  such  stock  against 
the  greater  risk  of  loss  resulting  from  other  accidents  or  from 
disease. 

Sources  ot  Rural  Insurance-Three  groups  of  concerns 
provide  most  of  the  rural  insurance.  (1)  At  a  recent  date 
there  were  over  1,800  local  mutual  fire  insurance  companies 
in  the  United  States,  a  large  proportion  of  which  are  local 
cooperative  farmers'  associations.  Similarly  much  of  the 
farmers'  tornado,  cyclone,  windstorm  and  livestock  insurance 
IS  obtained  through  local  mutuals.    The  usual  plan  is  to  re- 


r 


INSURANCE  OF  COMMODITIES 


311 


quire  a  small  cash  premium  and  in  case  their  losses  exceed 
their  income  to  obtain  the  excess  through  a  system  of  assess- 
ments. Although  many  local  mutuals  have  failed,  others 
have  been  successful  in  spite  of  the  restricted  volume  of  their 
business,  lack  of  assets,  and  assessments,  because  the  restricted 
area  of  their  operation  and  personal  acquaintance  of  their 
members  tends  to  prevent  overvaluation  and  to  eliminate 
much  of  the  moral  hazard  incident  to  property  insurance. 

(2)  Various  state  mutuals  have  from  time  to  time  been 
organized  for  rural  insurance.  They  cover  an  entire  state, 
portions  of  several  states  or  larger  areas,  and  have  the  advan- 
tage of  coming  more  nearly  within  the  law  of  average.  They 
have,  however,  been  less  successful  than  the  local  mutuals, 
because  their  operation  over  wider  areas  increases  the  moral 
hazard,  incurs  greater  competition  with  established  old  line 
companies,  inferior  supervision  over  the  selection  of  risks, 
and,  when  many  assessments  are  called,  widespread  with- 
drawal of  policyholders.^ 

(3)  Farm  risks,  particularly  fire  and  lightning,  but  to 
some  extent  also  livestock  and  other  forms  of  rural  risks,  are 
also  insured  in  regular  incorporated  joint-stock  insurance 
companies.  Many  of  these  companies  do  an  extensive  business 
both  in  cities  and  country  districts  and  operate  throughout 

wide  areas. 

(4)  Farmers  sometimes  obtain  insurance  in  the  so-called 
Lloyd's  associations  consisting  of  "voluntary  partnerships  of 
groups  of  men  in  which  each  member  agrees  to  hold  himself 
individually  liable  for  the  payment  of  losses  up  to  a  specified 
amount."  ^ 

Insubance  as  the  Basis  of  Commodity  Loans 

The  purpose  of  property  insurance  in  many  instances  is 
the  desire  to  obtain  credit.  In  basing  loans  upon  mortgages 
the  farmers  are  required  to  insure  any  farm  buildings  or 
equipment  which  may  be  pledged,  and  insurance  is  similarly 

*S.  S.  Huebner:    Property  Insurance,  pp.  60-61. 
*  Ibid.,  p.  65. 


»i 


312 


! 


AGRICULTURAL  COMMERCE 


important  when  loans  are  based  upon  farm  commodities. 
Farm  loans  secured  by  chattel  mortgages  on  livestock  some- 
times require  that  the  animals  be  insured;  and  loans  based 
upon  harvested  crops  usually  require  insurance  against  fire 
losses.  Growing  crops  are  less  commonly  insured  and  are, 
therefore,  accepted  as  collateral  for  but  a  small  fraction  of 
their  full  value.  Loans  on  stored  farm  commodities,  which 
are  secured  mainly  at  the  elevators  and  warehouses  of  the 


m. 


19... 


This  certifies  that ha . .  insur- 
ance by  this  company,  under  Policy  No ,  Entry 

No to  the  amount  of dollars 

on    


,  IJ. ., 


terminating   day  of   

at  noon. 

Loss,  if  any,  in  conformity  with  the  conditions  of  said 

policy,  to  be  adjusted  with 

and  payable  to o^jy  ^^ 

presentation  of  and  surrender  of  this  certificate. 

Countersigned  at  Philadelphia,  this day 

,  Manager. 

Form  38 


of 


central  markets  where  vast  quantities  of  grain,  cotton,  wool, 
leaf  tobacco  and  other  farm  products  are  stored,  are  almost 
invariably  dependent  upon  fire  insurance,  for  the  bankers, 
warehousemen  or  commissionmen  refuse  to  accept  the  ele- 
vator or  warehouse  receipts  as  collateral  unless  fire  insurance 
policies  or  certificates  are  attached. 

The  insurance  certificate,  a  copy  of  which  is  shown  in 
Form  No.  38,  is  a  special  device  the  main  purposes  of  which 
are  to  facilitate  commodity  loans  and  financial  settlement. 
A  dealer  may  take  out  a  general  policy  covering  all  the  cotton 


, 


INSURANCE  OP  COMMODITIES 


313 


or  other  commodity  purchased  or  stored  by  him  during  a 
given  period  and  then  issue  certificates  against  it  covering 
whatever  amounts  are  pledged  for  loans  or  sold  for  shipment, 
thereby  immediately  protecting  the  bank  making  the  loans,  or 
the  consignee.  The  policyholder  may  either  present  a  cer- 
tificate properly  countersigned  by  an  authorized  insurance 
company  official  or  issue  it  directly  and  request  the  company 
to  later  acknowledge  its  liability  by  letter,  thus  avoiding  the 
delay  and  inconvenience  incident  to  the  issue  of  a  new  policy 
or  the  assignment  of  the  interest  in  the  policy  each  time  a 
purchase  or  sale  is  made  or  a  warehouse  receipt  is  offered  as 
collateral  for  a  loan.  Without  either  insurance  certificates 
or  policies  the  practice  of  loaning  on  farm  commodities  would 
be  limited  and  the  prevailing  method  of  financing  crops  would 
be  severely  handicapped. 

The  Insurance  of  Stored  Commodities 

Farm  produce  stored  in  elevators  or  warehouses  is  almost 
invariably  insured  against  loss  by  fire  when  used  to  obtain 
credit,  but  it  is  usually  insured  even  when  not  pledged  as 
collateral,  for  its  owner  likewise  desires  protection.  Farmers 
may  sometimes  neglect  their  insurance,  but  the  dealers,  com- 
missionmen, jobbers,  brokers  and  others  who  hold  most  of  the 
products  stored  in  the  central  markets  are  careful  to  avoid 
needless  risks.  The  "Universal  Schedule,^'  for  rating  mer- 
cantile risks  for  example,  contains  a  special  "warehouse  tar- 
iff,'^ quoting  insurance  rates  for  over  1,400  commodities  stored 
in  warehouses,  including  nearly  all  the  agricultural  products 
suitable  for  storage.  Each  warehouse  is  assigned  a  basis  rate 
dependent  upon  varying  factors  such  as  the  city  in  which  it  is 
situated,  structural  materials,  proximity  to  water  mains,  va- 
riety of  commodities  accepted,  rules  regarding  admittance  of 
employees  only,  smoking,  arrangement  of  commodities,  run- 
ning aisles  and  the  like.  In  addition  each  commodity  is  as- 
signed a  special  stock  rate  in  accordance  with  its  inherent 
desirability  as  a  fire  risk.  Thus  a  given  grain  warehouse  or 
elevator  may  be  assigned  a  basis  rate  of  20  cents  per  $100, 


i    i 
I 


314 


AGRICULTURAL  COMMERCE 


and  grain  stored  in  bulk  an  additional  stock  rate  of  25  cents, 
making  the  total  premium  20  plus  25  cents  or  45  cents  per 
$100  in  contrast  with  a  rate  of  20  plus  40  or  60  cents  on  grain 
stored  in  cotton  bags. 

Dealers  frequently  carry  a  general  policy  covering  every 
bale  of  cotton,  bushel  of  wheat  or  other  farm  commodities 
stored  within  a  stated  period,  the  insurance  company  being 
informed  each  night  as  to  the  amount  of  the  da/s  purchases 
and  sales.  Under  this  plan  the  dealer  receives  a  premium  bill 
from  the  company  monthly  or  on  agreed  dates  for  the  amount 
covered  and  the  length  of  time  it  was  insured. 

The  sources  of  fire  insurance  in  case  of  farm  products 
stored  in  central  elevators  or  warehouses  are  principally  (1) 
the  regular  joint-stock  fire  insurance  companies,  many  of 
which  underwrite  a  huge  volume  of  fire  insurance  risks  of  all 
kmds  and  operate  over  wide  areas;  (2)  special  mutual  con- 
cerns such  as  the  Grain  Dealers'  National  of  Indianapolis 
and  the  Grain  Dealers'  Mutual  Fire  Insurance  Company  of 
Minneapolis,  and  (3)  local  fire  insurance  mutuals  operating 
within  the  cities  in  which  warehouses  are  located. 

Insurance  op  Commodities  m  Mills,  Factories  and  Mer- 
cantile Establishments 

Upon  arrival  at  the  mills,  factories,  wholesale  or  retail 
stores,  auction  warehouses  or  other  places  where  the  farm 
commodities  are  sold  by  actual  inspection  or  are  manufac- 
tured into  finished  products,  they  are  again  insured  against 
loss  by  fire.  Thus  grain,  cotton  and  wool  are  insured  at  flour 
and  textile  mills,  and  leaf  tobacco  at  the  tobacco  factories 
and  the  auction  warehouses  of  the  South. 

The  insurance  rates  are  higher  than  on  similar  commodi- 
ties stored  in  elevators  or  warehouses  because  the  fire  risks 
are  greater.  The  number  of  employees  in  mills,  factories  and 
stores  is  larger,  many  other  persons  frequent  them,  rules  of 
conduct  are  more  difficult  of  enforcement,  and  in  some  cases 
dust  and  other  sources  of  inflammability  are  more  likely  to 
accumulate. 


1L 


INSURANCE  OF  COMMODITIES 


315 


The  principal  sources  of  insurance  at  this  stage  in  the  life 
of  the  farm  commodity  are  (1)  the  regular  joint-stock  fire 
insurance  companies,  (2)  numerous  so-called  "factory 
mutuals"  organized  by  factory  and  mill  operators  coopera- 
tively with  a  view  to  reducing  the  cost  of  insurance,  and  (3) 
the  usual  local  mutuals  organized  to  insure  city  properties. 


Insurance  of  Commodities  En  Route 

The  extent  to  which  farm  products  are  insured  while  being 
transported  depends  largely  upon  the  legal  liability  of  the 
carrier,  and  this  in  turn  differs  widely  according  to  whether 
they  are  being  shipped  by  rail  or  water  routes. 

Insurance  af  Railroad  Shipments. — Farm  products 
shipped  by  rail  in  interstate  commerce  are  seldom  insured 
en  route  because  the  railroads  are  liable  for  all  ordinary  forms 
of  loss,  damage  and  unreasonable  delay,  subject  only  to  such 
exemptions  as  are  authorized  by  common  law,  the  federal 
statutes  and  by  the  "uniform'^  and  ^^standard"  bills  of  lad- 
ing.^ The  railroads  are  free  from  complete  liability  only 
under  certain  conditions :  They  are  not  liable  for  loss,  dam- 
age or  delay  caused  (1)  by  "the  act  of  God,  the  public  enemy, 
quarantine,  the  authority  of  law,"  "strikes  or  riots";  (2)  by 
the  act  or  default  of  the  shipper  or  owner,  or  by  requests  to 
hold  the  freight  in  transit  made  by  the  shipper,  owner  or 
other  party  entitled  to  make  such  a  request;  and  (3)  by  de- 
fects or  vice  in  the  freight  itself.  They  are  not  liable  for  (4) 
differences  in  the  weights  of  grain,  seed  or  other  commodities 
caused  by  natural  shrinkage  or  discrepancies  in  elevator 
weights;  or  (5)  for  "deviation  or  unavoidable  delays"  result 
ing  from  the  compression  of  cotton  bales.  (6)  Their  liability 
in  case  of  freight  shipped  on  open  cars  at  request  of  the  ship- 
per is,  '?  the  absence  of  negligence,  limited  to  loss  or  damage 
by  fire.  (7)  Forty-eight  hours  after  notice  of  arrival  has 
been  duly  sent  or  given  their  liability  as  carriers  ceases,  and 


it( 


Uniform  *'  bill  issued  by  northern  and  western  carriers,  and 
'  *  standard ' '  by  the  southern  carriers. 


316 


AGEICULTURAL  COMMERCE 


thereafter  they  are  liable  for  fire  loss  or  damage  only  as  ware- 
housemen, i.  e.,  they  are  exempted  except  in  case  of  gross 
negligence.     (8)   Their  liability  as  carriers  has  in  the  past 
been  modified  by  agreements,  special  contracts,  freight  classi- 
fications, or  tariffs  definitely  limiting  the  maximum  amounts 
collectible,  and  the  courts  have  held  such  value  limitations  to 
be  valid  on  interstate  shipments  and  have  ruled  that  shippers 
refusing  to  accept  these  conditions  may  be  required  to  pay 
freight  charges  in  excess  of  those  stated  in  the  tariffs.^    The 
so-called  "Cummings  Amendment"  to  the  Interstate  Com- 
merce Act,  which  became  effective  on  June  3,  1915,  will,  how- 
ever, prevent  interstate  carriers  from  so  limiting  their  liability 
in  the  future.     It  not  only  provides  as  did  the  "Carmack 
Amendment"  of  June  20,   1906,  that  the  original  carrier 
"shall  be  liable  to  the  lawful  holder  of  a  receipt  or  bill  of 
lading  for  any  loss,  damage  or  injury  to  property  caused  by  it, 
or  by  any  common  carrier,  railroad,  or  transportation  com- 
pany to  which  such  property  may  be  delivered,"  and  that  "no 
contract,  receipt,  rule,  regulation,  or  other  limitation  of  any 
character  whatsoever,  shall   exempt   such  common  carrier" 
from  liability,  but  in  addition  provides  that  the  original  car- 
rier shall  be  liable  "for  the  full  actual  loss,  damage,  or  injury 
to  such  property  caused  by  it  or  by  any  connecting  carrier'"; 
and  the  Interstate  Commerce  Commission  has  interpreted  this 
to  mean  that  the  carriers  may  neither  limit  their  liability  to 
the  shipper  nor  automatically  raise  their  rates  to  compensate 
themselves  for  the  increased  risks  which  the  act  imposes  upon 
them.^ 

Interstate  livestock  shipments  have  in  the  past  usually 
been  made  in  accordance  with  the  terms  of  the  so-called  lim- 
ited liability  or  "uniform"  livestock  contract.  In  order  to 
obtain  the  regular  interstate  livestock  rates,  the  shippers  were 
obliged  to  accept  agreed  maximum  valuations,  and  to  free  the 
railways  from  liability  as  insurers  and  for  loss,  d-r  age  or  de- 


*  Adams  Express  Co.  vs.  Croninger,  226  U.  S.  491     Hart  vs.  P. 
B.  R.,  112  U.  S.  331. 

'In  Be  the   Cummings  Amendment,  May  7,  1915,  33  I    C  C 

Reports  682.  '  •  v'-  v. 


INSURANCE  OF  COMMODITIES 


317 


lay  resulting  from  various  causes.  Such  limitations  will  also 
after  June  3,  1915,  be  prohibited  by  the  Cummings  amend- 
ment unless  the  courts  should  interpret  the  act  favorably  to 

the  carriers. 

In  some  states  the  liability  of  the  railroads  in  case  of  in- 
trastate shipments  is  similarly  fixed  by  special  state  statutes 
prohibiting  them  from  establishing  agreed  valuations  or  other- 
wise limiting  their  full  liability  as  common  carriers. 

The  liability  of  the  rail  carriers  was  so  extensive  in  the 
case  of  all  ordinary  agricultural  commodities,  except  livestock 
shipped  under  the  limited  liability  contract,  that  they  were 
seldom  insured  while  en  route  even  before  the  above-mentioned 
amendment  to  the  federal  liability  laws.     Those  shippers, 
moreover,  who  did  not  wish  to  accept  the  limited  risks  im- 
posed upon  them  in  the  uniform  bill  of  lading  could,  upon 
payment  of  charges  increased  10  per  cent,  above  the  regular 
freight  rates,  request  the  issue  of  a  "special  bill  of  lading' 
under  the  terms  of  which  the  railroads  accepted  full  liability 
for  loss,. damage  and  unreasonable  delay  caused  by  them. 
Livestock  shippers  were  similarly  able  to  protect  themselves 
fuUy  by  paying  increased  rates,  but  sometimes  preferred  to 
insure  their  animals  against  transit  losses  in  the  livestock 
insurance  companies  formerly  mentioned  in  connection  with 

rural  insurance. 

Insurance  of  Marine  Cargoes.— The  liability  of  steam- 
ship companies  and  other  water  carriers  in  case  of  loss  or 
damage  of  freight  cargoes  differs  widely  from  that  of  railroad 
carriers,  and  as  a  result  a  large  marine  insurance  business  has 
been  developed.  It  is  not  intended  to  describe  marine  insur- 
ance as  a  business,  but  to  discuss  briefly  those  phases  which 
directly  concern  the  protection  of  cargoes  and  freight.  The 
insurance  of  vessels  and  the  working  of  marine  insurance 
companies  and  of  Lloyds  and  other  marine  underwriting  as- 
sociations have  been  fully  described  elsewhere." 

The  liability  of  carriers  by  water  is  so  limited  that  the 
shipper  cannot  hold  tkem  responsible  for  any  of  the  usual 
^See  S.  S.  Huebner:    Property  Insurance,  Part  II— Marine  In- 
surance. 


n 


I 


318 


AGRICULTURAL  COMMERCE 


II 


risks  encountered  in  marine  shipping.  Their  bills  of  lading 
specify  their  freedom  from  liability  in  great  detail,  and  the 
federal  act  of  February,  1893,  known  as  the  Harter  Act,  stipu- 
lates that  they  are  not  liable  except  under  certain  specified 
conditions.  The  export  bills  of  lading  of  ocean  carriers  are 
not  uniform  but  the  following  liability  clauses  of  the  bill  of 
lading  issued  by  the  American  Line  is  typical: 

IT  IS  MUTUALLY  AGREED  that  the  steamer  shall  have 
liberty  to  sail  with  or  without  pilots;  that  the  carrier  shall 
have  liberty  to  convey  goods  in  craft  or  lighters  to  and  from 
the  steamer  at  the  risk  of  the  owners  of  the  goods ;  and,  in  case 
the  steamer  shall  put  into  a  port  of  refuge,  or  be  prevented 
from  any  cause  from  proceeding  in  the  ordinary  course  of 
her  voyage,  to  transship  the  goods  to  their  destination  by  any 
other  steamer;  that  the  carrier  shall  not  be  liable  for  loss  or 
damage  occasioned  by  fire  from  any  cause  or  wheresoever  oc- 
curring ;  by  barratry  of  the  master  or  crew ;  by  enemies,  pirates 
or  robbers;  by  arrest  or  restraint  of  princes,  rulers  or  people, 
riots,  strikes,  or  stoppage  of  labor;  by  explosion,  bursting  of 
boilers,  breakage  of  shafts,  or  any  latent  defect  in  hull,  ma- 
chinery or  appurtenances,  or  unseaworthiness  of  the  steamer, 
whether  existing  at  time  of  shipment,  or  at  the  beginning  of  the 
voyage,  provided  the  owners  have  exercised  due  diligence  to  make 
the  steamer  seaworthy;  by  heating,  frost,  decay,  putrefaction, 
rust,  sweat,  change  of  character,  drainage,  leakage,  breakage,  ver- 
min, or  by  explosion  of  any  of  the  goods  whether  shipped  with  or 
without  disclosure  of  their  nature,  or  any  loss  or  damage 
arising  from  the  nature  of  the  goods  or  the  insufficiency  of 
packages,  nor  for  inland  damage;  nor  for  the  obliteration, 
errors,  insufficiency  or  absence  of  marks,  numbers,  address  or 
description;  nor  for  risk  of  craft,  hulk  or  transshipment;  nor 
for  any  loss  or  damage  caused  by  the  prolongation  of  the 
voyage,  and  that  the  carrier  shall  not  be  concluded  as  to  cor- 
rectness of  statements  herein  of  quality,  quantity,  gauge,  con- 
tents, weight  and  value.  General  Average  payable  according  to 
York- Antwerp  Rules.  If  the  owner  of  the  steamer  shall  have 
exercised  due  diligence  to  make  said  steamer  in  all  respects 
seaworthy  and  properly  manned,  equipped  and  supplied,  it  is 
hereby  agreed  that  in  case  of  danger,  damage  or  disaster  re- 
sulting from  fault  or  negligence  of  the  pilot,  master  or  crew  in 
the  navigation  or  management  of  the  steamer,  or  from  latent 
or  other  defects,  or  unseaworthiness  of  the  steamer,  whether, 


INSURANCE  OF  COMMODITIES 


319 


existing  at  time  of  shipment,  or  at  the  beginning  of  the  voyage, 
but  not  discoverable  by  due  diligence,  the  consignees  or  owners 
of  the  cargo  shall  not  be  exempted  from  liability  for  contribu- 
tion in  General  Average,  or  for  any  special  charges  incurred, 
but,  with  the  shipowner,  shall  contribute  in  General  Average, 
and  shall  pay  such  special  charges,  as  if  such  danger,  damage 
or  disaster  had  not  resulted  from  such  fault,  negligence,  latent 
or  other  defects  or  unseaworthiness. 

IT  IS  ALSO  MUTUALLY  AGREED  that  this  shipment 
is  subject  to  all  the  terms  and  provisions  of,  and  all  the  ex- 
emptions from  liability  contained  in,  the  Act  of  Congress  of 
the  United  States,  approved  on  the  13th  day  of  February,  1893, 
and  entitled   "An  Act  relating   to  the  navigation  of  vessels, 

etc." 

IT  IS  ALSO  MUTUALLY  AGREED  that  the  value  of 
each  package  receipted  for  as  above  does  not  exceed  the  sum 
of  one  hundred  dollars  unless  otherwise  stated  herein,  on  which 
basis  the  rate  of  freight  is  adjusted. 

The  Harter  Act  referred  to  in  the  bill  of  lading  provides 
that  the  vessel  owner  is  liable  in  case  of  loss  or  damage  aris- 
ing from  (1)  "negligence,  fault,  or  failure  in  proper  loading, 
storage,  custody,  care,  or  property  delivery";  (2)  from  fail- 
ure "to  exercise  due  diligence,  properly  equip,  man,  provision 
and  outfit"  his  vessel;  (3)  from  failure  to  exercise  due  care 
in  making  his  vessel  "seaworthy  and  capable  of  performing 
her  intended  voyage."  The  vessel  owner  is  not  liable,  how- 
ever, for  losses  resulting  from  the  unseaworthy  condition  of  a 
properly  inspected  vessel  even  should  it  later  appear  that  it 
was  unseaworthy  before  leaving  port,  nor  for  losses  resulting 
from  errors  of  navigation,  provided  reasonable  care  was  taken 
in  providing  the  vessel's  officers  and  crew. 

The  vessel  owner  being  free  from  liability  for  loss  result- 
ing from  the  principal  risks  encountered  at  sea,  it  is  impor- 
tant that  the  shippers  insure  their  cargoes.  They  may,  more- 
over, find  it  desirable  to  insure  prepaid  or  collectible  freight 
moneys,  for  ocean  bills  of  lading  in  many  cases  contain  a 
clause  to  the  effect  "that  freight  prepaid  will  not  be  returned, 
goods  lost  or  not  lost,"  and  another  providing  "that  full 
ireight  is  payable  on  damaged  or  unsound  goods." 


320 


AGRICULTUKAL  COMMERCE 


The  perils  or  risks  against  which  protection  is  granted  in 
marine  insurance  policies  may  be  grouped  as  follows:  (1) 
So-called  "perils  of  the  sea";  (2)  fire;  (3)  jettison,  i.  e.,  the 
sacrificing  in  time  of  need  of  a  portion  of  the  cargo  or  vessel 
property  for  the  common  safety  of  the  remainder;  (4)  bar- 
ratry which  in  case  of  cargoes  has  reference  mainly  to  theft  by 
officers  or  crew;  (5)  losses  resulting  from  men-of-war,  ene- 
mies, pirates,  rovers,  thieves,  reprisals,  takings  at  sea,  arrests, 
restraints,  etc.,  which  in  present-day  practice  refers  mainly 
to  war  risks;  and  (6)  "all  other  perils,  losses,  and  misfor- 
tunes that  have  or  shall  come  to  the  hurt,  detriment  or  dam- 
age of  the  vessel  or  cargo." 

The  usual  cargo  and  freight  policy  does  not  protect  the 
shipper  against  all  possible  perils,  for  the  last-mentioned 
clause  is  not  all-inclusive.  It  is  interpreted  so  as  to  include 
only  such  other  perils  as  are  similar  to  those  especially  stated 
in  the  preceding  policy  clauses.  The  general  cargo  policy 
does  not  relieve  the  shipper  from  losses  due  to  an  inherent 
defect  of  the  commodities  shipped  or  resulting  from  natural 
deterioration,  or  wear  and  tear.  Cargo  policies,  moreover, 
usually  provide  that  no  insurance  will  be  paid  unless  the  loss 
or  damage  to  a  particular  commodity  exceeds  a  stated  per- 
centage of  its  value. 

It  is  possible,  however,  upon  payment  of  increased  pre- 
mium rates  demanded  by  the  insurer,  to  attach  special  clauses 
to  a  marine  policy,  covering  almost  any  conceivable  peril,  for 
"nowadays  all  sorts  of  clauses  may  be  written  into  a  policy  of 
marine  insurance,  including  loss  from  earthquakes,  pilferage, 
and  leakage  of  liquids ;  protection  on  the  wharf  while  awaiting 
shipment,  delivery,  or  transshipment;  breakage,  risks  from 
the  manufacturers'  plant  by  inland  rail  through  by  trans- 
oceanic vessel  and  interior  transportation  to  the  warehouse 
of  the  consignee,  and  even  risk  by  mule-back  transport  over 
the  Andes."  ^ 

The  losses  which  arise  from  the  perils  mentioned  above 
may  take  various  forms.  (1)  The  loss  may  be  a  "total  loss" 
either  "actual"  or  "constructive."    The  former  occurs  when 

*  B.  O.  Hough :     Ocean  Traffic  and  Trade,  p.  205. 


INSURANCE  OF  COMMODITIES 


321 


the  cargo  is  actually  lost,  completely  destroyed,  entirely  re- 
moved from  the  possession  of  the  owner,  or  so  badly  damaged 
as  to  be  of  practically  no  value.  A  constructive  total  loss  of 
cargo  occurs  when  the  goods  "fail  to  arrive  at  the  port  of 
destination,  and  when  the  cost  of  restoring  any  loss  or  damage 
and  of  forwarding  the  cargo  to  its  final  destmation,  amounts 
to  more  than  the  goods  are  worth  after  thus  being  repaired 
and  forwarded,"  or  when  they  are  so  situated  that  the  expense 
of  saving  them  would  amount  to  more  than  their  value  after 
the  expenditure  is  incurred.^ 

(2)  In  contrast  with  total  losses,  a  partial  loss  of  cargo 
or  freight  may  occur,  such  losses  being  settled  either  in  ac- 
cordance with  the  "general  average"  or  "particular  average" 
rules.  The  maritime  laws  of  nations  provide  that  losses  re- 
sulting from  the  voluntary  and  deliberate  sacrifice  of  any 
interest  for  the  common  safety  of  the  entire  vessel,  cargo  and 
freight  shall  be  prorated  among  all  benefited  interests,  i.  e., 
it  shall  be  settled  in  accordance  with  the  "general  average" 
rule.  When  cargo,  masts  and  rigging  or  other  parts  of  ves- 
sels, for  example,  are  thrown  overboard,  when  the  vessel  is 
stranded,  or,  when  in  case  of  fire,  water  losses  are  suffered  for 
the  common  good,  all  parties  gaining  by  the  sacrifice  must 
bear  a  proportionate  share  of  the  loss  incurred. 

(3)  A  partial  loss  of  cargo  or  freight  may  also  result 
from  an  accident  as  distinct  from  one  resulting  from  an  order 
given  by  the  vessel's  master,  in  which  case  the  "particular 
average"  rule  is  applied.  Commodities  may,  for  example,  be 
damaged  by  coming  in  contact  with  sea  water  or  they  may  be 
crushed  during  a  storm.  Such  losses  are  not  sustained  for  the 
common  safety ;  they  concern  none  but  those  especially  inter- 
ested in  the  damaged  commodities  and  those  alone  are  obliged 
to  bear  whatever  loss  or  damage  is  incurred.  Marine  policies 
frequently  do  not  cover  such  loss  unless  it  exceeds  an  agreed 
percentage  of  its  value. 

(4)  A  partial  loss  may  also  be  declared  as  a  result  of 
salvage  which  is  the  amount  granted  by  law  and  custom  to 
third  parties  for  the  saving  of  life  and  property  at  sea.    Such 

*  S.  S.  Hiiebner :     Property  Insurance,  p.  303. 


322 


AGKICULTUKAL  COMMERCE 


losses  are  apportioned  among  all  the  benefited  interests  as  in 
case  of  general  average. 

There  are  many  different  types  of  cargo  and  freight  poll- 
cies,  for  there  are  many  underwriting  associations  and  com- 
panies and  widely  varying  needs.  Thus  there  are  general 
''cargo/'  'lake  cargo,"  "river  cargo,"  "cotton,"  "freight," 
"war  risk,"  etc.,  policies.  A  copy  of  a  typical  general  cargo 
policy  issued  by  an  American  company  is  reproduced  in 
Form  No.  39. 

Policies  which  specify  the  actual  value  or  agreed  value  of 
the  commodities  insured  are  known  as  "valued"  policies,  and 
those  which  omit  to  do  so,  as  "open"  policies.  Moreover, 
policies  which  specify  the  name  of  the  vessel  in  which  the 
commodities  are  transported  are  "named"  policies,  while  those 
which  do  not  specify  a  particular  vessel  are  "floating"  pol- 
icies. Those  which  cov^r  a  specified  voyage  are  "voyage" 
policies,  in  contrast  with  the  "time"  policies  which  provide 
protection  for  a  period  of  time.  Policies  may  lastly  be  classi- 
fied as  "interest"  or  "wager"  policies,  according  to  whether 
the  insured  has  or  has  not  a  real  insurable  interest  in  the  com- 
modities insured.  The  latter  type  of  policy  is  not  enforceable 
by  law  and  its  fulfillment  depends  upon  the  underwriters' 
honor,  for  it  is  one  of  the  fundamental  principles  of  insurance 
law  that  a  policy  must  represent  an  insurable  interest. 

As  in  the  case  of  fire  insurance  it  has  become  a  common 
practice  to  issue  marine  insurance  certificates  against  cargo  . 
policies,  so  as  to  avoid  delay  and  inconvenience  and  afford 
immediate  protection  to  consignees.  These  certificates,  which 
are  similar  to  those  issued  in  connection  with  fire  insurance 
policies,^  may,  moreover,  be  used  when  international  settle- 
ments are  made  by  means  of  documentary  bills  of  exchange. 

The  sourges  of  marine  insurance  in  the  United  States  in 
so  far  as  they  concern  cargoes  or  freight  which  has  been  pre- 
paid or  is  collectible  are  threefold:  (1)  foreign  marine  or 
fire  and  marine  insurance  companies,  which  underwrite  more 
than  a  majority  of  the  total  risks;  (2)  American  companies. 


^See  Form  38,  p.  312. 


INSURANCE  OP  COMMODITIES 


323 


most  of  which  conduct  a  fire  as  well  as  a  marine  insurance 
business,  and  in  contrast  with  their  foreign  competitors  em- 
phasize mainly  their  fire  business;  and  (3)  the  Bureau  of 


41 
(CARMY 


^^'C'pe^fe^ 


§g  tlie  §Uiwtk  JRtttunt  |n»ttan»  tfompxtis*  ^^'■ 

.    ■ _^.  ACCOOKr  OK — _ 


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tartMM,  *•  hM  Bill  kt  iMM. 


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Form  39 

War  Risk  Insurance  of  the  United  States  Treasury  Depart- 
ment, created  by  an  Act  of  September  2,  1914,  to  insure  the 
war  risks  of  vessels,  cargoes  and  freight  moving  under  the 
American  flag.  The  cargo  policy  which  is  reproduced  in  Form 
No.  40,  shows  how  the  bureau  imderwrites  war  risks  exclu- 


I 


t ' 


324 


AGKICULTUEAL  COMMERCE 


sively,  marine  risks  being  left  to  private  insurance  concerns. 
In  addition  to  these  sources,  large  navigation  companies  some- 
times operate  self -insurance  funds  but  such  plans  do  not  as  a 


!■  I 


No.  3 
CARQO 


No.. 


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k.         W  TREASURY    DE-PAI 


TREASURY  DEPARTMENT 

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Form  40 


rule  include  the  insurance  of  shippers'  cargoes  and  prepaid  or 
collectible  freight.  Shippers  may  obtain  marine  insurance 
direct  from  the  insurance  companies,  through  insurance 
agents  or  brokers  who  are  located  at  all  important  ports. 


INSURANCE  OF  COMMODITIES 


325 


and  in  some  cases  the  steamship  lines  will  take  out  the  neces- 
sary insurance  for  the  shippers. 

Cargoes  shipped  in  sailing  vessels  or  in  coastwise  barges 
which  take  the  outside  or  open  sea  route,  and  deck  loads,  are 
sometimes  shipped  without  marine  insurance  or  are  pro- 
tected only  against  fire  losses.  The  great  majority  of  all  car- 
goes, however,  are  regularly  insured  so  as  to  reduce  the  ship- 
per's and  consignees'  risks  to  the  minimum.  In  c.i.f.  ship- 
ment the  shipper  bears  the  cost  of  the  insurance,  because  he 
is  in  this  case  required  to  quote  a  net  price  which  makes  full 
allowance  for  '^cost,  insurance  and  freight."  In  an  f.o.b. 
(free  on  board)  shipment,  on  the  contrary  the  insurance  cost 
falls  upon  the  consignee. 


Insurance  the  Basis  of  Financial  Settlement 

The  function  of  insurance  as  the  basis  for  financial  settle- 
ment is  in  greatest  evidence  in  the  oversea  trade  because  this 
trade  is  conducted  over  water  routes  and  because  the  docu- 
mentary bill  of  exchange  is  the  most  widely  used  method  of 
international  settlement.  Such  bills  of  exchange  are  not  ac- 
cepted unless  they  have  attached  to  them  an  order  bill  of 
lading,  an  invoice  and  a  marine  insurance  policy  or  certifi- 
cate. Other  forms  of  international  settlement  are  less  di- 
rectly dependent  upon  marine  insurance,  yet  the  protection 
of  the  commodities  shipped  also  affects  the  establishment  of 
an  open  account  or  the  issue  of  commercial  and  finance  bills. 
Shippers  would  be  far  more  apt  to  demand  cash  with  their 
orders  if  the  commodities  to  be  shipped  could  not  be  insured 
against  loss  at  sea. 

Marine  insurance  similarly  affects  domestic  settlements  in 
case  of  shipments  via  inland  or  coastwise  water  routes.  Do- 
mestic settlements  as  a  whole,  however,  depend  less  upon  the 
insurance  of  the  commodities  bought  and  sold  because  the 
railroads  who  transport  much  the  larger  share  are  legally 
obliged  to  act  as  insurers  en  route  and  therefore  obviate  the 
need  of  attaching  an  insurance  certificate  to  a  domestic  docu- 


326 


AGRICULTURAL  COMMERCE 


mentary  draft  when  settling  for  commodities  shipped  by  raiL 
It  is  obvious,  however,  that  the  insurance  of  farm  crops  when 
stored  or  handled  in  warehouses,  elevators,  mercantile  estab- 
lishments, mills,  factories  or  elsewhere  until  finally  disposed 
of,  frequently  has  a  bearing  upon  the  arrangements  for  fi- 
nancial settlement. 

BIBLIOGRAPHY 

Bailey,  L.  H.    Cyclopedia  of  Agriculture  (1909),  Vol.  4,  p.  303. 

Gow,  Wm.    Marine  Insurance — A  Handbook  (1909). 

Hoffman,  F.  L.    Windstorm  and  Tornado  Insurance  (1908). 

Hough,  B.  O.    Ocean  Traffic  and  Trade  (1914),  chap.  10. 

HuEBNER,  S.  S.  Property  Insurance  (1911),  Part  I,  chaps. 
1,  19,  and  Part  II. 

Johnson,  E.  R.  Ocean  and  Inland  Water  Transportation 
(1906),  chap.  14. 

Lumby,  a.  T.  "Tornado  Insurance,"  chap.  65  in  H.  P.  Dun- 
ham: The  Business  of  Insurance  (1912). 

Powell,  G.  H.     Cooperation  in  Agriculture  (1913),  chap.  12. 

Interstate  Commerce  Commission:  In  Re  the  Cummings 
Amendment,  33  I.  C.  C.  Reports  682  (May  7,  1915). 

— '■ In  the  Matter  of  Bills  of  Lading,  29  I.  C.  C.  Reports  417 

(Feb.  9,  1914). 

Wilson,  A.  J.     The  Business  of  Insurance  (1904),  chap.  6. 

Young,  T.  E.  A  Practical  Exposition  for  the  Student  and 
Business  Man  (1903),  chaps.  13,  14. 

United  States  Bureau  of  Corporations:  Transportation  by 
Water  in  the  United  States  (1909),  Part  I,  chap.  5. 

United  States  Bureau  of  Navigation :  Navigation  Laws  of  the 
United  States  (1911),  Part  7. 

Policy  contracts  and  rate  cards  of  livestock,  tornado,  wind- 
storm, cyclone  and  casualty  insurance  companies. 


I  ■■■ 


!^ 


CHAPTER    XVI 
THE    FINANCING   OF  CEOPS 

An  important  part  of  the  organization  of  the  trade  in  agri- 
cultural products  is  the  necessary  financial  organization.  The 
various  steps  in  the  financing  of  the  country's  crops  may,  for 
purposes  of  description,  be  subdivided  into:  (1)  rural  credit, 
(2)  dealers'  loans  on  produce,  (3)  the  place  of  hedging  in 
crop  financing,  (4)  methods  of  financial  settlement  and  (5) 
the  seasonal  flow  of  crop-moving  funds. 

Rural  Credit 

The  farmers  who  produce  the  agricultural  crops  are  re- 
quired to  take  the  first  step  in  financing  them.  Those  who  own 
their  land  and  have  sufficient  resources  to  make  necessary  im- 
provements, provide  needed  equipment,  and  carry  themselves 
from  season  to  season  without  borrowing,  can  finance  their 
crops  from  their  own  funds.  There  are  many  others,  however, 
who  are  required  to  operate  on  credit.  This  is  particularly 
true  of  tenant  farmers,  owners  of  farms  only  partly  paid  for  or 
unimproved,  and  those  who  are  financially  weak,  but  there  are 
also  many  progressive  landowning  farmers  who  borrow  funds 
for  the  same  reasons  that  men  engaged  in  other  industries 
operate  on  credit.  It  is  estimated  that  the  agricultural  debt 
of  the  United  States  is  no  less  than  five  billion  dollars.^ 

Lon^-term  Mortgage  Credits. — Rural  credit  is  of  two 
quite  distinct  kinds  which  differ  as  regards  length  of  time, 
purposes  and  sources.    Long-term  credits  are  required  in  or- 

*G.  K.  Holmes  (Chief  Division  of  Production  and  Distribution, 
U.  S.  Department  of  Agriculture)  :  *  *  The  Sources  of  Rural  Credit 
and  Extent  of  Rural  1ndel)tednes8. " 

327 


t::i 


n' 


^    ! 


328 


AGRICULTURAL  COMMERCE 


der  to  purchase  farm  lands,  make  permanent  improvements 
and  occasionally  to  equip  farms.  They  are  based  upon 
farm  mortgages  and  in  1910  they  aggregated  about  $2,793,- 
000,000,  or  55.9  per  cent,  of  the  country's  total  farm  in- 
debtedness. 

The  principal  source  in  the  case  of  purchase  money  is  the 
individual  seller  from  whom  the  farmer  purchased  his  land, 
while  long-term  credit  to  be  used  for  other  purposes  is  ob- 
tained mainly  from  local  banks  and  trust  companies  not  under 
the    National    Bank    Act,    neighboring    farmers,    individual 
lenders  in  nearby  cities,  and  loan  agencies  representing  insur- 
ance companies.     There  are  also  certain  large  outside  land 
mortgage  banks  which  make  a  business  of  issuing  land  de- 
bentures secured  by  farm  mortgages.     Eight  states— Idaho, 
Indiana,  Iowa,  North  Dakota,  Oklahoma,  Oregon,  South  Da- 
kota and  Utah — make  loans  on  farm  mortgages,  the  loans  be- 
ing limited,  however,  except  in  the  case  of  Utah,  to  such  sums 
as  are  part  of  an  irreducible  school  fund.^     In  1914,  more- 
over, the  state  of  New  York  provided  for  the  creation  of  a' 
'"land  bank''  to  be  associated  with  local  mortgage  credit  asso- 
ciations, and  legislation  providing  for  the  organization  of  local 
credit  unions  has  also  been  enacted  in  Massachusetts  and 
Texas.    Limited  loans  on  farm  mortgages  have  likewise  been 
made  by  the  Jewish  Farmers'  Cooperative  Credit  Union,  and 
some  rural  loans  have  been  made  by  the  building  and  loan 
associations  which  have  become  so  important  in  the  purchase 
of  city  real  estate. 

Short-term  Rural  Commercial  Credits.— Distinct  from 
these  long-term  mortgage  loans  are  the  short-term  loans 
which  are  designed  to  carry  the  farmer  from  one  crop  sea- 
son to  another,  to  enable  him  to  hold  his  crops  for  favorable 
prices,  and  in  some  cases  to  purchase  equipment.  They  are 
variously  based  upon  crop  liens,  chattel  mortgages,  single 
or  indorsed  notes,  unsecured  book  accounts,  and  miscellaneous 
farm  property,  warehouse  receipts  or  securities. 

'Wisconsin  State  Board  of  Public  Affairs  (William  M.  Duffus)": 
Report  on  Agricultural  Settlement  and  Farm  Ownership  ''  Part  I 
on  State  Loans  to  Farmers  (1912). 


THE  FINANCING  OF  CROPS 


329 


It  was  estimated  that  in  1910  farm  loans  aggregating  $2,- 
207,000,000  were  either  unsecured  or  based  upon  collateral 
other  than  real-estate  mortgages.  Loans  amounting  to  about 
$390,000,000  were  based  upon  cotton  crop  liens,  the  cotton 
growers— particularly  in  the  eastern  cotton  belt— pledging 
their  growing  crop  with  local  merchants,  banks  or  landlords 
and  central  cotton  factors  for  advances  of  funds  or  supplies.^ 
Crop  liens  to  the  extent  of  $450,000,000  were  similarly  util- 
ized by  growers  of  leaf  tobacco,  grain,  fruit  and  other  farm 
produce.  Loans  aggregating  $700,000,000  were  based  upon 
chattel  mortgages,  that  is,  liens  on  livestock,  farm  machinery 
or  other  personal  property  of  farmers  pledged  chiefly  to  local 
banks,  local  money  lenders,  and  in  the  case  of  some  "cattle 
loans"  to  central  commissionmen.  Open  book  accounts  with 
local  merchants  provided  short-term  loans  of  supplies,  ma- 
chinery, etc.,  aggregating  $250,000,000;  and  other  miscel- 
laneous farm  loans  amounting  to  $417,000,000  were  also  ob- 
tained. 

Shartcomings  of  Farm  Credits.— It  is  evident  from  the 
above  statement  that  farm  credit  is  by  no  means  an  insignifi- 
cant phase  of  crop  financing  in  the  United  States.  Yet  there 
are  many  farmers  who  have  experienced  difficulties  in  obtain- 
ing the  amount  or  kind  of  credit  or. the  favorable  terms  de- 
sired, thereby  hampering  to  some  extent  the  purchase,  im- 
provement and  equipment  of  farm  lands  and  obliging  many 
farmers  to  dispose  of  their  crops  at  times  when  in  their  judg- 
ment the  market  prices  are  unfavorable. 

The  specific  obstacles  most  frequently  complained  of  are 
various:  (1)  A  fundamental  difficulty  has  been  the  inade- 
quacy of  the  sources  of  farm  credits.  About  six-sevenths  of 
the  country's  farm  loans  are  derive^  from  strictly  local  and 
nearby  sources  such  as  local  banks,  general  stores,  neighboring 
farmers  and  local  money  lenders.  Only  about  one-seventh  of 
the  credit  is  supplied  from  outside  sources.  The  resources 
of  the  great  banking  and  financial  centers  of  the  United 
States  have  entered  the  field  of  rural  credit  in  but  a  limited 

degree. 

^  See  chap,  v,  p.  105. 


330 


AGRICULTURAL  COMMERCE 


The  national  banks  were  until  the  enactment  of  the  Fed- 
eral Reserve  Act  of  1913  prohibited  from  loaning  on  real  es- 
tate  or  accepting  as  commercial  paper  the  farmer's  promissory 
notes  running  over  ninety  days.  The  first  of  these  provisions 
debarred  such  banks  almost  entirely  from  long-term  farm 
loans,  and  the  second  seriously  limited  their  usefulness  as 
sources  of  short-term  credit  because  a  loan  for  ninety  days 
is  usually  of  insufficient  length  for  agricultural  purposes. 
Commercial  banks,  moreover,  aside  from  any  legal  require- 
ments, have  preferred  industries  the  wares  of  which  move 
more  constantly  and  can  be  turned  over  daily  or  on  short 
notice. 

The  Act  of  1913  remedies  the  legal  situation  in  part  by 
permitting  national  banks  not  situated  in  central  reserve 
cities  to  make  loans  based  on  improved  and  unencumbered 
farms  situated  within  their  respective  districts,  for  periods 
not  exceeding  five  years  and  amounts  not  exceeding  50  per 
cent,  of  the  farm's  value,  the  total  not  to  exceed  25  per  cent, 
of  the  bank's  capital  and  surplus  or  one-third  of  its  time  de- 
posits. It  also  permits  reserve  banks  to  rediscount  notes, 
drafts  and  bills  of  exchange  issued  for  farm  purposes  or  based 
on  livestock,  provided  that  the  maturity  does  not  exceed 
six  months  or  the  total  does  not  exceed  in  amount  such  per- 
centage of  its  capital  as  is  to  be  fixed  by  the  Federal  Reserve 
Board. 

(2)  There  has  been  some  difficulty  in  obtaining  farm 
credits  of  satisfactory  term  length.  The  returns  of  insur- 
ance companies,  for  example,  show  that  in  case  of  long-term 
loans  the  usual  length  of  farm  mortgages  is  five  years,  al- 
though some  of  them  run  for  periods  of  seven  to  ten  years. 
What  many  farmers  desire  for  purposes  of  purchase  and  per- 
manent improvement  is  a  loan  running  for  a  period  of  from 
20  to  35  years  so  as  to  extend  practically  from  one  farm  gen- 
eration to  another.  Such  credits  are  provided  by  some  of  the 
land  mortgage  companies  which  issue  mortgage  debentures, 
but  such  concerns  have  since  the  nineties  been  limited  in  num- 
ber. Those  farmers,  moreover,  who  desire  short-time  loans, 
often  require  a  term  exceeding  90  days  and  therefore  find  a 


THE  FINANCING  OF  CROPS 


331 


poor  market  for  their  notes  as  compared  with  the  commercial 
paper  issued  in  industries  not  so  dependent  upon  seasonal 

crops. 

(3)  In  many  parts  of  the  United  States  the  trend  of  dis- 
cussion concerning  farm  credits  is  directed  principally  toward 
the  reduction  of  interest  rates  and  other  incidental  costs. 
The  average  rate  of  interest  on  farm  loans  in  the  United 
States  is  about  7.75  per  cent,  ranging  from  an  average  of  5.8 
per  cent,  in  New  Hampshire  to  11.58  per  cent,  in  Oklahoma. 
Nominally  they  do  not  exceed  the  interest  rates  paid  in  cities, 
except  in  a  minority  of  instances,  but  there  are  frequently  in- 
cidental costs  which  result  in  the  payment  of  exorbitant  real 
interest  charges.  To  circumvent  the  maximum  interest  rates 
established  by  law  the  sums  stated  in  farmers'  notes  sometimes 
are  made  to  exceed  the  amount  actually  loaned,  or  two  notes 
each  requiring  the  payment  of  interest  may  be  drawn,  one 
in  favor  of  an  outside  loaning  institution  and  the  other  in 
favor  of  the  local  agency,  the  notes  being  based  respectively 
on  a  first  and  second  mortgage.  At  times  there  are  also 
commissions,  abstract  costs  and  renewal  fees.  In  the 
case  of  open-book  credits  or  loans  of  supplies  or  implements 
secured  by  crop  liens,  exorbitant  usury  is  sometimes  con- 
cealed in  the  prices  which  are  charged  for  the  wares  so  ad- 
vanced. 

(4)  In  case  of  crop  liens  an  additional  source  of  com- 
plaint, particularly  in  the  cotton  states,  frequently  arises  from 
the  growers'  loss  of  control  over  the  sale  of  his  crops,  as  re- 
gards both  method  and  time  of  sale. 

There  has  in  recent  years  been  much  agitation  in  favor 
of  various  kinds  of  rural  credit  reforms,  such  as  government 
or  state  loans,  land  debenture  banks  and  cooperative  credit 
banks,  unions  or  associations.  Detailed  studies  have  been 
made  of  the  cooperative  credit  plans  of  Germany,  France, 
"  Italy,  Austro-Hungary,  Russia,  Switzerland  and  other  for- 
eign countries.^ 

^See  Lorenzoni:  Outline  of  European  Credit  Systems;  Herrick 
and  Ingalls:  Kural  Credits;  International  Institute  of  Agriculture: 
Outline  of  European  Cooperative  Credit  Systems. 


332  AGRICULTURAL  COMMERCE 


Dealers'  Loans  on  Produce 

9 

Having  financed  the  farmers'  crops  before  they  are  har- 
vested and  before  they  have  left  his  premises,  a  second  phase 
of  crop  financing  arises  after  they  have  been  shipped  to  mar- 
ket.    Again  those  farmers  who  have  adequate  resources  of 
their  own  may,  if  they  do  not  wish  to  sell  at  once,  ship  their 
crops  to  the  markets,  store  them  in  warehouses  or  elevators 
and  ultimately  dispose  of  them  without  outside  assistance. 
There  are  others,  however,  who  cannot  hold  them  without 
receiving  loans  or  advances.     Such  farmers  may  store  their 
grain,  cotton,  tobacco  or  other  farm  products  in  recognized 
warehouses,    elevators,   or   other   storage   places   and   obtain 
credit  either  from  the  banks  direct  or  through  the  warehouse- 
men or  commissionmen  based  upon  warehouse  receipts  or 
other  evidence  of  crop  ownership.    At  times  there  is  complaint 
that  farmers  are  not  able  to  contract  such  loans  as  readily 
as  produce  dealers  and  some  of  the  cotton  unions  of  the 
South  have  endeavored  to  remedy  the  situation  by  providing 
cooperative  warehouses  and  establishing  definite  banking  con- 
nections, but  the  Department  of  Agriculture  reported  in  1912 
that  on  the  whole  but  one-fourth  of  the  farmers  holding  ware- 
house receipts  use  them  for  the  purpose  of  obtaining  credit. 
Much  the  larger  portion  of  such  loans  or  advances  are  nego- 
tiated by  dealers  and  other  crop  purchasers,  rather  than  by 
the  growers,  who  in  the  majority  of  instances  sell  their  crops 
to  local  buyers  or  ship  them  to  central  markets  for  immediate 
sale.     Most  of  the  farmers  who  wish  to  hold  their  crops  for 
higher  prices  store  them  on  their  own  premises;  it  is  the 
exceptional  farmer  who  stores  them  in  central  warehouses 
and  uses  them  as  collateral  for  loans.    Dealers  or  other  buyers 
on  the  contrary,  in  order  to  provide  the  immense  amounts 
of  cash  required  to  buy  the  crops  as  they  are  offered  by  the 
growers,  and  who  store  large  quantities,  frequently  pledge  the 
stored  products  as  collateral  for  loans. 

Loans  on  Grain.— Local    dealers    obtain    such    credit    at 
times,  but  since  they  usually  dispose  of  most  of  their  holdings 


THE  FINANCING  OF  CROPS 


333 


shortly  after  acquiring  them,  it  devolves  mainly  upon  the 
dealers  at  the  central  markets  to  contract  loans  of  this  kind. 
Vast  quantities  of  grain  are  stored  in  the  central  elevators  at 
the  primary  and  seaboard  markets  by  elevatormen  and  central 
grain  dealers  to  be  held  until  they  are  finally  sold  to  domestic 
mills  or  exporters.  Meanwhile  much  of  this  grain  is  pledged 
to  banks  as  the  basis  for  loans,  the  elevator  or  warehouse  re- 
ceipts being  accepted  as  evidence  of  ownership.  This  so- 
called  ''grain  paper,"  being  based  upon  receipts  which  are 
carefully  regulated  by  law  in  the  western  grain  states,  the 
entire  trade  conduct  of  the  public  elevators  in  fact  being  sub- 
ject to  state  and  exchange  control,^  is  readily  accepted  in  all 
ordinary  times  by  many  western  banks.  Indeed  some  western 
grain  paper  is  also  placed  in  the  eastern  banks  of  the  United 
States  and  in  Canadian  banks  through  commercial  paper 

brokers. 

Cotton  Loans. — The  practice  of  cotton  buyers  is  similar 
to  that  of  the  central  grain  dealers,  although  the  issue  of 
cotton  warehouse  receipts  is  on  the  whole  less  subject  to  pub- 
lic or  exchange  regulation.  The  bases  of  cotton  loans  differ 
at  the  various  points  in  its  passage  from  grower  to  spinner. 
When  bought  at  the  gin,  "gin  tickets"  issued  by  the  ginning 
concerns  may  be  pledged  at  banks  for  loans  of  funds;  when 
held  at  a  cotton  compress,  the  "compress  receipts"  may  be 
similarly  used;  and  when  stored  in  warehouses  either  at  the 
various  interior  points  of  concentration,  or  at  the  cotton  ports, 
the  warehouse  receipts  become  the  basis  for  loans.  When 
moving  from  gin  to  compress  or  compress  to  central  market 
before  final  sale  and  shipment  to  spinner  or  importer,  the 
railroad  bill  of  lading  may  be  substituted  for  the  storage  re- 
ceipts as  evidence  of  ownership  and  be  used  as  collateral  for 
bank  loans  or  advances  from  cotton  factors. 

Leaf  Tobacco  and  Wool  Loans. — Similarly  leaf  tobacco, 
wool  or  other  produce  suitable  for  storage,  is  frequently 
pledged  as  collateral  for  loans  or  advances  either  directly  with 
banks  or  indirectly  with  warehousemen  or  central  commission- 
men.    The  proprietors  of  the  auction  leaf  tobacco  warehouses 

^See  chap,  iv,  p.  65, 


334 


AGEICULTURAL  COMMERCE 


'4i^4f 


of  the  South  frequently  make  advances  on  stored  leaf,  they 
in  turn  obtaining  loans  from  local  banks,  and  during  the 
"leaf  tobacco  war"  of  1904-1905  the  growers  of  some  districts 
acting  in  union  obtained  loans  from  outside  (New  York) 
banks  which  accepted  a  lien  on  the  tobacco.  Wool  stored  at 
the  large  eastern  and  middle- western  central  wool  markets 
is  also  pledged  for  bank  loans  by  the  central  wool  dealers,  and 
in  case  of  consigned  wool  is  sometimes  oifered  by  local  dealers 
or  growers  to  obtain  advances  from  commission  houses. 

Cold  Storagfe  Warehouse  Loans. — Farm  produce  of  all 
kinds  suitable  for  storage  and  held  in  cold  storage  warehouses 
is  at  many  central  produce  markets  regularly  pledged  by  cen- 
tral produce  dealers,  and  occasionally  by  local  shippers  and 
growers,  to  obtain  credit.  The  loans  are  sometimes  obtained 
from  the  cold  storage  warehousemen  who  are  in  a  better  posi- 
tion to  judge  produce  values  and  come  into  closer  business 
contact  with  their  clients  than  the  banks.  Their  loaning 
function,  moreover,  is  regarded  as  a  convenience  by  both 
client  and  banker,  and  tends  toward  careful  warehouse  man- 
agement. The  bankers  to  whom  they  in  turn  go  for  credit 
generally  fall  into  three  groups :  those  who  readily  loan  on 
produce  upon  presentation  of  storage  receipts,  those  who 
loan  only  after  examination  of  the  stored  produce,  and  those 
who  refuse  to  accept  cold  storage  produce  as  the  basis  for 
credit  or  do  so  only  sparingly. 

The  Place  of  Hedging  in  Crop  Financing 

The  practice  of  hedging  spot  grain  and  cotton  transac- 
tions on  the  speculative  exchanges  is  a  further  step  in  the 
financing  of  the  speculative  crops.^  By  enabling  grain  and 
cotton  buyers  to  distribute  the  risk  of  price  changes  among 
produce  speculators  and  insuring  themselves  against  loss  of 
trade  profits,  they  are  able  to  operate  on  narrower  price  mar- 
gins, pay  the  farmers  relatively  higher  prices,  enter  into  con- 
tracts calling  for  the  delivery  in  the  future  of  grain  and  cot- 

^  For  description  of  hedging  see  chap,  vii,  p.  156. 


THE  FINANCING  OF  CROPS 


335 


ton  not  possessed  at  the  time,  purchase  almost  unlimited  quan- 
tities for  storage,  and  strengthen  their  financial  standing  and 
credit. 

The  extent  to  which  dealers  can  pledge  grain  or  cotton 
in  order  to  obtain  loans  from  banks  is  greatly  enhanced  by 
the  practice  of  hedging  which  reduces  the  danger  of  losses 
on  the  part  of  grain  and  cotton  buyers,  and  by  the  existence 
of  organized  exchanges  where  large  quantities  of  produce  so 
pledged  can  if  necessary  be  sold  in  the  shortest  possible  time. 
Hedging  similarly  affects  credit  accommodations  not  based 
upon  produce  liens,  for  it  generally  reduces  the  risks  of  the 
grain  and  cotton  trades. 


Methods  of  Financial  Settlement 

Domestic  Settlements. — Sales  of  farm  products  in  the  spot 
produce  markets  of  the  United  States  are  settled  in  various 
ways:  (1)  Sales  of  grain,  cotton  or  other  products  sold  be- 
fore shipment  may  be  settled  by  using  a  railroad  order  bill 
of  lading.  Such  bills  of  lading  are  made  out  to  the  order  of 
the  shipper  and  require  the  consignee  to  present  the  properly 
indorsed  original  copy  to  the  railroad  before  the  latter  may 
deliver  the  goods  to  him.  The  original  or  yellow  copy  may 
therefore  be  taken  to  the  shipper's  local  bank  and  when  ac- 
companied by  an  invoice,  and  in  case  of  water  transportation, 
by  a  marine  insurance  certificate,  may  be  used  as  the  basis 
for  a  draft  drawn  on  the  consignee  or  on  another  bank  in 
which  he  has  established  a  credit.  The  draft  may  call  for 
payment  at  sight,  or  for  periods  of  say  30,  60  or  90  days,  and 
it  may  be  drawn  so  as  to  require  actual  payment  before  de- 
livery of  the  indorsed  bill  of  lading  or  "for  acceptance." 
In  the  latter  case  the  consignee  is  obliged  to  appear  at  the 
bank  at  destination  and  formally  accept  the  draft  in  order 
to  obtain  the  bill  of  lading  but  need  not  settle  for  the  products 
until  the  draft  matures.  By  using  the  order  bill  of  lading 
the  shipper  may,  however,  obtain  immediate  payment  for  his 
shipment  through  regular  banking  channels. 


336 


AGRICULTURAL  COMMERCE 


THE  FINANCING  OF  CROPS 


337 


(2)  In  case  of  farm  products  consigned  to  a  commission- 
man,  broker  or  factor  as  is  commonly  done  in  the  livestock 
and  fruit  trades  and  not  infrequently  in  the  grain,  cotton, 
leaf  tobacco,  wool  and  other  agricultural  trades,  the  commis- 
sion concerns  usually  settle  with  the  purchaser,  and  after  de- 
ducting their  commission  or  brokerage  fee,  transportation 
costs  and  any  other  shipping  or  trade  costs  chargeable  to  the 
products  sold,  send  the  shipper  an  itemized  statement  and  a 
check  or  draft  covering  the  balance  due. 

(3)  Shippers  of  farm  staples  may  also  run  open-book  ac- 
counts for  buyers,  particularly  with  concerns  making  frequent 
purchases,  settlement  being  made  periodically  or  upon  pres- 
entation of  bill. 

(4)  The  buyer  of  farm  products  may  settle  with  the  ship- 
per through  the  use  of  so-called  commercial  credit  bills,  which 
are  drafts  drawn  by  him  on  a  bank  as  a  commercial  credit. 
Such  drafts  have  no  documents  attached  to  them,  but  are 
merely  drawn  on  the  bank  which  has  agreed  to  accept  them 
for  payment  with  the  understanding  that  the  customer  will 
put  the  bank  in  funds  before  the  draft  falls  due.  The  bank 
may  extend  such  credit  without  collateral,  or  it  may  require 
security  in  the  form  of  bills  receivable,  claims  against  cus- 
tomers, merchandise  or  similar  collateral. 

(5)  Settlement  may  also  be  made  through  "finance  bills" 
which  are  drawn  against  stock  or  bond  collateral  deposited 
with  a  bank.  Finance  bills  are  more  commonly  used  by  banks 
than  by  merchants  and  are  therefore  often  known  as  bankers' 
bills,  but  sometimes  they  are  also  used  for  purposes  of  com- 
mercial settlement. 

(6)  Cash  produce  transactions  may  also  be  settled  by  re- 
quiring cash  payment  on  delivery  or  cash  with  order.  Offers 
of  a  discount  may  be  made  to  induce  cash  payments,  and 
sometimes  it  is  requested  that  shipments  shall  be  partly  paid 
for  by  cash  with  order,  the  remainder,  to  be  paid  in  accord- 
ance with  some  one  of  the  preceding  methods  of  settlement. 

Settlement  of  Agricultural  Exports  and  Imports. — All  the 
methods  of  settlement  enumerated  above  are  utilized  also 
in  the  agricultural  export  and  import  trades,  but  in  these 


trades  the  settlements  based  upon  the  export  or  import  bills 
of  lading  are  of  paramount  importance.  The  common  practice 
is  to  draw  a  draft,  known  in  the  foreign  trade  as  a  bill  of 
exchange,  either  upon  a  designated  bank  or  upon  the  con- 
signee, the  bill  having  attached  to  it  the  original  ocean  or 
rail-ocean  bill  of  lading,  an  invoice  showing  the  nature  of  the 
products,  and  a  marine  insurance  certificate.  Such  drafts  are 
known  as  documentary  bills  of  exchange.  When  drawn  upon 
a  bank  it  means  that  the  purchaser  has  established  a  "con- 
firmed bankers'  credit"  at  some  recognized  bank  in  London, 
Paris,  New  York  or  other  European  or  American  banking 
center,  which  upon  receipt  of  the  bill  with  proper  documents 
attached  will  either  pay  it  on  sight  or  accept  it  for  payment 
upon  maturity.  Documentary  bills  of  exchange  drawn  direct 
upon  the  consignee  are  less  commonly  used  in  the  foreign 
trade,  but  they  too  may  be  drawn  either  for  payment  or  for 
acceptance,  the  former  bill  requiring  payment  before  delivery 
of  the  bill  of  lading  and  the  latter  permitting  such  delivery 
upon  formal  acceptance  by  the  consignee  who  thereby  obli- 
gates himself  to  settle  the  bill  when  it  falls  due  at  the  end 
of  say  three  or  four  months.  Documentary  bills  of  exchange 
are  particularly  adapted  to  the  foreign  trade  for  they  reduce 
the  element  of  risk  to  both  shipper  and  consignee  and  enable 
the  shipper  to  obtain  his  money  as  soon  as  the  goods  are  for- 
warded. They  are  particularly  useful  as  a  safe  method  of 
extending  credit  to  foreign  buyers. 

It  is  customary  to  execute  the  bills  of  exchange  and  all 
attached  documents  in  duplicate  and  to  forward  them  in 
separate  mails  so  as  to  minimize  the  risk  of  loss  in  transit.  It 
is  also  important  that  the  attached  bills  of  lading  should 
represent  actual  commodities  to  the  amount  specified  in  the 
bill  and  invoice.  The  use  of  fraudulent  and  worthless  cotton 
bills  of  lading  severely  disrupted  the  financing  of  cotton  ex- 
ports in  1911. 

A  variation  of  the  documentary  bill  drawn  on  a  confirmed 
banker's  credit  is  the  so-called  "Oriental  letter  of  credit" 
which  is  sometimes  used  in  the  trade  with  far-eastern  coun- 
tries.    In  this  case  the  foreign  merchant  at  the  time  he 


338 


AGRICULTURAL  COMMERCE 


t      ! 


! 


orders  the  American  products  supplies  a  letter  or  statement 
which  IS  merely  an  advice  to  the  New  York  bankers  acting  as 
correspondents  of  the  far-eastern  bankers  that  it  will  probably 
be  safe  to  purchase  drafts  drawn  on  the  Oriental  firm  in  ques- 
tion up  to  certain  amounts.  No  actual  confirmed  credit  has, 
however,  been  established  in  this  case  and  the  drawer  is  not 
relieved  from  responsibility,  for  the  advice  is  not  an  actual 
letter  of  credit.^  , 

Commercial  credit  bills  are  sometimes  used  by  large  ex- 
porting and  importing  firms.  Foreign  finance  bills  are  also 
used  particularly  the  so-called  ^Tiouse  bills"  which  are  drawn 
by  American  firms  on  their  own  branches  in  Europe,  but  are 
now  less  freely  drawn  than  in  the  past.^  Open  accounts  are 
run  far  less  commonly  than  in  the  domestic  trade.  Ca^h  pay- 
ment with  order  is  seldom  required  for  it  is  customary  to 
grant  credit  in  the  foreign  trade;  and  settlement  through 
loreign  commissionmen  is  unimportant  because  agricultural 
products  are  seldom  shipped  abroad  on  consignment. 

The  Seasonal  Flow  of  Crop-moving  Funds 

Until  recently  one  of  the  pronounced  phases  of  crop  finan- 
cing was  the  seasonal  flow  of  bank  funds— westward  during 
the  crop-moving  months  and  eastward  after  the  bulk  of  the 
crops  had  been  sold.     Vast  quantities  of  cash  are  needed  in 
the  western  grain  states  during  the  summer  and  fall  months 
when  cash  is  required  to  pay  for  the  millions  of  bushels  of 
gram  which  are  then  marketed  by  such  farmers  as  do  not 
hold  their  crops  for  sale  in  later  months.     Until  the  later 
nineties  much  of  the  money  sent  to  the  West  for  crop-movincr 
purposes  consisted  of  eastern  bank  deposits,  the  western  bank^s 
being  unable  to  provide  sufficient  cash  from  their  own  re- 
sources.    Later  the  western  banking  situation  was  greatly 
improved,  and  it  was  no  longer  necessary  to  the  same  extent 

2  ?■  ?;  ^^""^^  '•   ^^^^"^  '^^^^^  ^""^  Trade,  p.  398. 
P.  M.  Warburg:    *'The  Discount  System  in  Europe  »'  Natinnfll 
Monetary  Commission  Eeport,  p.  13.  ^  '     JNational 


THE  FINANCING  OF  CROPS 


339 


to  call  upon  the  eastern  banks  for  assistance.  The  seasonal 
flow  of  funds  continued,  however,  for  many  western  banks 
regularly  sent  a  portion  of  their  reserves  eastward  during  the 
dull  season,  but  called  upon  the  eastern  banks  for  its  return 
during  the  crop-moving  season. 

It  is  at  this  point  that  the  grain  and  securities  markets 
are  interrelated,  because  many  of  the  funds  flowing  eastward 
during  the  dull  season  are  loaned  to  brokers  and  dealers  in 
securities  for  the  purchase  of  stocks  and  bonds.  Many  other 
factors  affect  the  security  market,  but  in  so  far  as  it  depends 
upon  the  condition  of  the  money  market,  the  eastward  flow 
of  funds  tends  to  stimulate  security  dealings  and  the  west- 
ward flow  to  depress  them.  The  interrelation  was  especially 
manifest  during  the  financial  panic  of  1907  when  a  money 
stringency  prevailed  and  many  eastern  banks  refused  to  return 
to  the  western  banks  the  surplus  funds  which  they  needed  to 
finance  the  crops.  Had  the  call  of  the  western  banks  been 
heeded  the  prices  of  securities  would  have  suffered  even  more 
than  they  did.  As  it  was  the  price  of  grain  was  abnormally 
depressed  because  of  lack  of  sufficient  crop-moving  funds, 
and  for  a  time  the  grain  trade  was  demoralized. 

In  recent  years  the  seasonal  flow  of  bank  funds  has  been 
less  noticeable,  alike  because  the  western  banks  have  been  less 
willing  to  repeat  their  experience  of  1907  and  because  it  is  now 
less  necessary  for  them  to  seek  outside  sources  of  profit  after 
the  crops  have  been  marketed,  and  less  necessary  to  seek  the 
assistance  of  eastern  banks.  The  Federal  Keserve  Act  of  1913 
will  affect  the  seasonal  flow  of  bank  funds  somewhat,  for 
it  provides  that  after  thirty-six  months  from  date  of  the 
establishment  of  a  federal  reserve  bank  in  any  district  no  por- 
tion of  the  legally  required  reserves  of  any  bank  organized 
under  the  Act  may  be  held  anywhere  except  in  the  bank's  own 
vaults  or  in  those  of  the  federal  reserve  bank  of  the  district 
in  which  it  is  situated. 


340 


ii 


AGRICULTURAL  COMMERCE 
BIBLIOGRAPHY 


Arnold,  J.  J.  "The  Financing  of  Cotton,"  The  Annals  of  the 
American  Academy  of  Political  and  Social  Science 
(Sept.,  1911). 

"Financing  Cotton,"  Journal  of  American  Bankers'  As- 
sociation   (January,  1911). 

Ebersole,  J.  F.  "Cattle  Loan  Companies,"  Journal  of  Political 
Economy  (June,  1914). 

Haney,  L.  H.  "Farm  Credit  Conditions  in  the  Cotton  States," 
American  Economic  Review  (Mar.,  1914),  pp.  47-67. 

Herrick,  M.  T.,  and  Ingalls,  R.    Rural  Credits  (1914). 

Holmes,  G.  K.  (United  States  Department  of  Agriculture). 
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Indebtedness,"  publications  of  International  Institute  of 
Agriculture  (April  and  May,  1913). 

Hough,  B.  O.  Elementary  Lessons  in  Exporting  (1909), 
chap.  X. 

Ocean  Traffic  &  Trade  (1914),  chap.  15. 

Kemmerer,  E.  W.     Agricultural  Credit  in  the  United  States, 

American  Economic  Review   (Dec,  1912). 
Patterson,  E.  M.    Certain  Changes  in  New  York's  Position  as 

a  Financial  Center,  Journal  of  Political  Economy  (June, 

1913). 

Pope,   J.    E.     Agricultural   Credit    in   the   United    States,   in 

Quarterly  Journal  of  Economics   (Aug.,  1914). 
Powell,  G.  H.    Cooperation  in  Agriculture  (1913),  chap.  xi. 
Putnam,  G.  E.    Farm  Credits  in  Kansas,  American  Economic 

Review  (Mar.,  1915),  pp.  27-37. 
Smith,  Rollen  E.     Wheat  Fields  and  Markets  of  the  World 

(1908),  Part  II,  chaps.  3,  4. 
Warburg,  P.  M.     The  Discount  System  in  Europe,  National 

Monetary  Commission  (1910). 
International  Institute  of  Agriculture:     Outline  of  European 

Cooperative  Credit  Systems  (1912). 
Jewish    Agricultural    and    Industrial    Aid    Society:      Annual 

Reports. 

Sub-Committee  of  House  Committee  on  Banking  and  Cur- 
rency: Hearings  on  Rural  Credits,  63d  Congress,  2d 
Sess.    (1914). 

U.  S.  Senate:  Compilation  of  Documents  on  Agricultural 
Credit  Banks,  62d  Congress,  2d  Sess.  (1912). 

Wisconsin  State  Board  of  Public  Affairs  (William  M.  Duf- 
fers) :    Report  on  State  Loans  to  Farmers  (1912). 


CHAPTER   XVII 
PEICES   OF   AGEICULTURAL   COMMODITIEB 

No  phase  of  the  trade  in  farm  products  has  in  recent  years 
caused  more  discussion  than  the  rise  in  prices  which  products 
have  undergone  since  the  year  1896.  In  discussing  the  extent 
of  this  rise  and  its  causes,  and  the  factors  which  determine 
the  prices  of  farm  commodities  it  is  advisable  to  bear  in  mind 
that  the  trade  organization  through  which  such  commodities 
pass  in  their  flow  from  farmer  to  consumer  varies  widely  and 
that  their  prices  change  as  they  pass  from  the  local  to  the 
primary  or  central  markets  of  the  interior  and  again  as  they 
pass  to  the  final  purchaser,  who  may  be  located  in  the  interior, 
at  the  seaboard  ports  or  other  distant  domestic  markets,  or  in 
foreign  countries.  There  is  no  uniform  trade  machinery, 
but  as  in  the  sale  of  other  commodities  it  is  possible  to  dis- 
tinguish at  least  three  primary  groups  of  prices  for  many 
of  the  great  farm  staples :  wholesale  or  central  market  prices, 
growers'  local  prices  and  retail  prices. 


Wholesale  Prices 

Although  the  crops  in  many  instances  pass  through  the 
local  markets  before  reaching  the  great  central  wholesale 
markets  it  is  desirable  to  discuss  wholesale  prices  first,  as 
they  constitute  the  basis  alike  of  farm  and  retail  prices.  The 
wholesale  prices  are  the  standard  in  accordance  with  which 
all  other  agricultural  commodity  prices  are  gauged.  It  is  at 
the  wholesale  markets  that  price  fluctuations  are  primarily 
determined. 

The  wholesale  markets  for  American  farm  products  in 
most  instances  are  threefold :  the  central  or  primary  markets 

341 


342 


AGKICTJLTUKAL  COMMERCE 


of  the  interior,  the  seaboard  markets,  and  the  foreign 
wholesale  markets.  Their  relative  importance  as  price  es- 
tablishers  varies,  a  limited  group  usually  having  a  dominant 
position.  In  establishing  the  wholesale  price  for  American 
grain,  for  example,  the  primary  grain  markets  of  the  interior, 
particularly  Chicago,  are  dominant ;  in  the  cotton  trade,  Liver- 
pool, New  Orleans  and  New  York;  in  the  domestic  wool  trade, 
Boston,  New  York,  and  Philadelphia;  in  the  livestock  trade 
the  primary  livestock  centers  of  the  Central  West;  while  in 
the  leaf  tobacco,  fruit  and  produce  trades  the  importance  of 
the  various  wholesale  markets  is  more  evenly  balanced.  The 
absolute  prices  of  a  given  farm  commodity  differ  at  the  vari- 
ous wholesale  markets,  but,  except  temporarily,  such  differ- 
ences merely  reflect  varying  transportation,  selling  and  other 
distribution  costs,  and  in  some  cases  import  duties.  Wholesale 
agricultural  prices,  especially  in  those  trades  where  exchanges 
have  been  organized,  are  national,  their  entire  level  fluctuat- 
ing in  relatively  close  harmony.  The  wholesale  prices  for 
grain  and  cotton,  moreover,  are  practically  world-wide  be- 
cause of  the  extent  of  international  trade  in  those  staples, 
the  well-organized  condition  of  the  world's  trade  in  them, 
and  the  larger  amount  of  organized  speculation.  To  a 
limited  extent  there  is  also  a  world  wholesale  price  for  wool, 
leaf  tobacco  and  livestock. 

Price  Index  Numbers  of  Agricultural  Products.  ^The 
standardized  method  of  indicating  the  fluctuations  of  general 
price  levels  is  in  terms  of  index  numbers  based  upon  actual 
prices  but  expressed  in  percentages,  and  such  index  numbers 
have  been  computed  for  the  wholesale  prices  of  farm  products 
from  1860  to  the  present  time.  Those  for  the  year  1860 
to  1890  were  compiled  by  the  so-called  Aldrich  Committee  ^ 
of  the  United  States  Senate,  and  those  for  later  years  by  the 
United  States  Bureau  of  Labor  Statistics,  which,  as  shown  in 
Table  XIY,  has  readjusted  all  of  them  with  the  average  for 
the  period  1890  to  1899  as  100. 

The  table  shows  that  the  wholesale  prices  of  farm  prod- 

'  Senate  Report  No.  1394  (part  2),  2d  session,  52d  Cong.,  Finance 
Committee,  1893. 


PRICES  OF  AGRICULTURAL  COMMODITIES      343 

ucts  declined  during  the  years  1892  to  1896,  then  advanced 
steadily  until  1900,  and  thereafter  fluctuated  irregularly  but 
gradually  rose  to  an  unusually  high  level.    In  1913  they  were 

50.7  per  cent,  higher  than  in  1890,  51.2  per  cent,  higher  than 
in  1900,  and  65.8  per  cent,  above  the  average  prices  of  the 
decade  1890  to  1899.  Not  all  the  farm  commodities  included 
in  these  index  numbers  underwent  the  same  increase  in 
prices,  but  the  advance  in  all  the  great  staples  was  substan- 
tial. As  compared  with  the  average  for  the  period  1890  to 
1899  the  wholesale  prices  of  hogs  (heavy)  in  1913  showed 
an  increase  of  89.6  per  cent.,  of  beef  steers  (choice  to  prime) 

67.8  per  cent.,  upland  cotton  (middling)  64.8  per  cent., 
corn  64.3  per  cent.,  barley  53.1  per  cent.,  oats  39.8  per 
cent.,  wheat  26.9  per  cent.,  and  sheep  (western)  20.8  per 
cent. 

Table  XIV,  moreover,  shows  that  the  wholesale  prices  of 
farm  products  have  since  1896  increased  to  a  far  greater 
extent  than  the  general  level  of  all  wholesale  commodity  prices 
combined  and  more  rapidly  than  those  of  any  of  the  other 
groups  into  which  the  bureau  classifies  commodity  prices. 
As  compared  with  the  increase  of  65.8  per  cent,  in  the  rela- 
tive prices  of  farm  products  in  1913  over  the  average  for  the 
decade  1890  to  1899,  the  general  commodity  price  level  in- 
creased 35.2  per  cent.,  food  prices  37.1  per  cent.,  the  prices 
of  cloths  and  clothing  23.7  per  cent.,  of  fuel  and  lighting  42.2 
per  cent.,  metals  and  implements  27.5  per  cent.,  lumber  and 
building  materials  51.8  per  cent.,  drugs  and  chemicals  24.1 
per  cent.,  housefurnishings  18.1  per  cent.,  and  miscellaneous 
commodities  37.1  per  cent. 

Index  Numbers  of  General  Wholesale  Price  Levels. 
— Since  the  unusual  or  special  increase  in  farm  commodity 
prices  as  compared  with  the  increase  in  the  general  level  of 
prices  is  especially  significant  because  of  its  bearing  upon 
the  causes  of  price  changes,  it  is  well  to  establish  this  general 
price  level  as  definitely  as  possible.  The  principal  wholesale 
commodity  price  index  numbers,  in  addition  to  those  pub- 
lished by  the  Bureau  of  Labor  Statistics  for  the  United  States, 
are  those  compiled  by  Bradstreefs  and  by  Mr.  Thomas  Gib- 


■i^ 


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344 


AGEICTJLTTIRAL  COMMERCE 


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son;^  for  British  wholesale  markets  by  the  London  Econo- 
mist, and  Mr.  Augustus  Sauerbeck;  and  for  Canada  by  the 
Canadian  Department  of  Agriculture.  As  is  shown  in  Table 
XV  these  index  numbers  register  respective  advances  between 
the  years  1900  to  1913  of  22.4  per  cent.,  17  per  cent.,  31.4  per 
cent.,  27.2  per  cent.,  13.3  per  cent.,  and  25.2  per  cent.^  This 
variation  even  as  between  the  index  numbers  representing 
wholesale  prices  in  the  United  States  is  due  in  part  to  the 
varying  number  of  commodities  and  the  wholesale  markets 

TABLE  XV 
Index  Numbers  of  General  Wholesale  Commodity  Prices 


Year 

U.S. 
Bureau 
of  Labor 
Statis- 
tics 

Brad-  * 

street's 

Gibson's 

London 
Econ- 
omist 

Sauer- 
beck's 

Cana- 
dian 
Labor 
Depart- 
ment 

1900....... 

1901 

1902 

1903 

1904 

1905 

1906 

1907 

1908 

1909 

1910 

1911 

1912 

1913 

110.5 
108.5 
112.9 
113.6 
113.0 
115.9 
122.5 
129.5 
122.8 
126.5 
131.6 
129.2 
133.6 
135.2 

7.88 

7.57 

7.88 

7.94 

7.92 

8.09 

8.41 

8.90 

8.00 

8.51 

8.98 

8.7129 

9.1867 

9.2115 

44.2 
44.5 
53.5 
49.0 
48.3 
47.3 
49.8 
50.9 
54.2 
59.2 
59.3 
56.9 
62.6 
58.1 

2125 
1948 
2003 
2197 
2136 
2342 
2361 
2508 
2223 
2231 
2407 
2542 
2699 
2704 

75 
70 
69 
69 
70 
72 
77 
80 
73 
74 
78 
80 
85 
85 

108.2 
107.0 
109.0 
110.5 
111.4 
113.8 
120.0 
126.2 
120.8 
121.2 
124.2 
127.4 
134.4 
135.5 

Increase, 
1900-1913. 

Per  Cent. 
22.4 

Per  Cent. 
17 

Percent. 
31.4 

Per  Cent. 
27.2 

Percent. 
13.3 

Per  Cent. 
25.2 

*  Continuation    of   those   compiled  by  Dun's  until  1907. 

'  The  Times  Annalist  publishes  index  numbers  of  wholesale  food 
prices  showing  an  increase  during  this  period  of  40.4  per  cent.  The 
Canadian  index  numbers  are  given  because  agricultural  conditions 
in  Canada  resemble  those  in  the  United  States  in  many  respects;  and 
the  British  index  numbers  are  of  value  because  the  United  Kingdom 
is  the  largest  foreign  market  for  American  farm  products,  and  be- 
cause they  are  not  restricted  by  protective  import  duties. 


PRICES  OF  AGRICULTURAL  COMMODITIES      347 

included  in  their  computation.  All  of  them  indicate,  however, 
that  the  general  level  of  wholesale  prices  has  advanced  less 
rapidly  than  the  wholesale  prices  of  farm  products. 

Wholesale  Price  Factors 

Though  various  distinct  schools  of  thought  have  endeav- 
ored to  attribute  the  general  rise  in  prices,  including  agri- 
cultural as  well  as  all  other  products,  to  some  one  cause,  the 
preponderance  of  evidence  tends  to  show  that  the  rise  in  the 
wholesale  price  of  farm  commodities  was  due  to  a  combina- 
tion of  causes. 

1.  The  Gold  Production  Theory. — A  portion  of  the  rise 
has  doubtless  been  due  to  the  increase  in  the  production  of 
gold  and  in  the  use  of  credit.  According  to  this  conception 
in  its  most  approved  form  prices  are  the  resultant  of  the  fol- 

MY  +  M^V^ 
.     In  this  formula  M 


lowing   formula.^     P=- 


T 


equals  the  amount  of  money  in  circulation  in  the  United 
States;  M^  the  individual  bank  deposits  subject  to  check;  V 
and  V^  their  respective  velocities  of  circulation;  and  T  the 
total  volume  of  trade  expressed  in  dollars.  Each  of  these 
price  factors  were,  after  laborious  research,  estimated  by  Pro- 
fessor Irving  Fisher,^  and  with  the  year  1909  as  the  basis 
the  theoretical  general  prices  for  each  of  the  years  1896  to 
1909  was  computed.  The  parallel  columns  of  Table  XVI 
show  how  these  calculated  prices  expressed  in  index  numbers 
compared  with  the  index  numbers  of  actual  prices,  includ- 
ing the  prices  of  securities  and  labor  as  well  as  of  commodi- 
ties. 

All  of  the  factors  in  the  accepted  formula  changed  dur- 
ing the  period  1896  to  1909  but  those  which  changed  to  the 
greatest  extent  exerted  the  widest  influence  upon  prices.    The 

*  Expounded  and  applied  practically  by  Professors  E.  W.  Kem- 
merer  and  Irving  Fisher. 

*See  Irving  Fisher:  The  Purchasing  Power  of  Money  (Revised 
1913),  pp.   276-318. 


348 


AGRICULTUKAL  COMMERCE 


amount  of  money  in  circulation  in  the  United  States  was 
estimated  to  have  increased  from  .87  to  1.63  billion  dollars; 
individual  deposits  subject  to  check  from  2.68  to  6.75  billions ; 
the  velocity  of  money  circulation  from  19  to  22;  and  the 
velocity  of  check  circulation  from  36  to  54.  The  estimated 
volume  of  trade,  (T),  also  increased  from  209  to  399  billion 
dollars,  but  being  the  divisor  the  effect  of  this  increase  was 
to  reduce  prices.    Of  those  factors  which  tend  toward  higher 

TABLE  XVI 
Calculated  Index  Numbers 


• 

Year 

■ — 

Directly 
(P) 

Indirectly 
MV  +  M^V* 

T 

1896 

63 
64 
66 
74 
80 
84 
89 
87 
85 
91 
97 
97 
92 
100 

54 

1897 

62 

1898 

56 

1899... 

60 

1900 

68 

1901 

76 

1902 

82 

1903 

75 

1904 

81 

1905 

83 

1906 

90 

1907 

86 

1908 

.87 

1909 

100 

prices  the  greatest  gains  were  in  the  amount  of  money  in  cir- 
culation and  in  the  velocity  of  check  transactions.  As  stated 
by  Professor  Fisher: 

The  four  price-raising  causes  may  be  arranged  in  the  fol- 
lowing order  of  relative  importance: 

Except  for  the  growth  of  Y,  prices  would  have  been  1  per 
cent,  lower  than  they  were. 

Except  for  the  growth  of  — ,  prices  would  have  been  23 

M 
per  cent.  lower  than  they  were. 


PRICES  OF  AGRICULTURAL  COMMODITIES      349 

Except  for  the  growth  of  V*,  prices  would  have  been  28 

per  cent,  lower  than  they  were. 
Except  for  the  growth  of  M,  prices  would  have  been  45 
per  cent,  lower  than  they  were. 
We  conclude,  therefore,  that  the  growth  of  the  velocity  of 
circulation  of  money  was  a  negligible  factor  in  raising  prices; 
that  the  relative  growth  of  deposits  and  their  velocity  were 
large  factors;  and  that  the  growth  of  money  was  the  largest. 
The  importance  of  the  growth  of  money  as  a  price-raising  fac- 
tor was,  according  to  the  above  figures,  almost  exactly  double 
that  of  relative  deposits  and  a  little  over  50  per  cent,  greater 
than  that  of  their  velocity  of  circulation. 

Since  the  growth  of  M  was  largely  dependent  upon  the 
increased  production  of  gold  it  is  readily  seen  how  this  ex- 
planation of  the  increase  in  prices  came  to  be  known  as  the 
"gold  theory  of  prices.^'  Its  staunchest  advocates,  however, 
do  not  claim  that  the  increased  gold  output  was  solely  re- 
sponsible for  the  rising  price  level,  for  their  calculations  indi- 
cate that  a  portion  of  the  rise  was  due  to  the  increased  ve- 
locity of  check  transactions.  It  is  estimated  that  over  90  per 
cent,  of  the  business  of  the  United  States  is  performed  by 
checks  and  less  than  10  per  cent,  by  money.  Increased  credit 
transactions  as  well  as  the  increased  gold  output  was  there- 
fore among  the  foremost  causes  of  the  general  increase  in 
prices. 

It  is  futile,  however,  to  contend  that  the  rise  of  the  whole- 
sale prices  of  farm  products  or  of  any  other  special  group 
of  commodities  was  due  solely  to  the  causes  considered  in  the 
preceding  paragraphs.  The  above  formula  could  at  most 
serve  to  explain  the  increase  in  the  general  level  of  all  prices 
combined.  Yet  the  price  of  wheat,  cotton  or  any  other  farm 
product  or  of  any  commodity  whatsoever  is  to  some  extent  a 
special  price  which  is  only  partly  dependent  upon  the  factors 
m  which  establish  a  general  level  of  prices.     As  was  previously 

I         stated  the  prices  of  farm  products  increased  to  a  far  greater 
m        extent  than  the  general  level  of  all  wholesale  commodity  prices 
M       combined,  and  there  is  wide  variation  between  individual  farm 
m     products  as  regards  the  extent  to  which  their  prices  have  ad- 

\ 


350 


AGRICULTURAL  COMMERCE 


^^m 


vanced.  Similar  variations  also  occur  between  other  com- 
modities. While  the  index  numbers  of  the  Bureau  of  Labor 
Statistics  show  an  advance  of  66.5  per  cent,  in  the  price  of 
eggs  in  1913  as  compared  with  the  average  for  the  decade 
1890  to  1899,  lard  68.3  per  cent.,  bacon  88.7  per  cent.,  dressed 
beef  62.4  per  cent.,  yellow  pine  sidings  74  per  cent.,  and  white 
pine  boards  (uppers)  113  per  cent.,  the  wholesale  price  of 
men's  boots  and  shoes  increased  but  23.6  per  cent.,  house- 
furnishings  18.1  per  cent.,  and  the  wholesale  price  of  some 
commodities  such  as  sugar,  news  and  wrapping  paper  de- 
clined. All  of  these  fluctuations  varied  widely  from  the  ad- 
vance in  the  general  level  of  commodity  prices. 

The  unusual  advance  in  the  price  of  farm  products  was 
only  partly  due  to  increased  gold  production  and  the  greater 
velocity  of  check  transactions.  Moreover,  the  exact-  propor- 
tion of  the  advance  chargeable  to  these  factors  is  not  known 
because  the  opportunities  for  error  in  the  theoretical  price 
calculations  mentioned  above  are  obvious.  That  the  calcula- 
tions were  made  with  exemplary  care  is  admitted,  yet  some 
of  the  principal  items  are  estimates  rather  than  definitely 
known  facts.  It  is  doubtful,  for  example,  whether  any  two 
statisticians,  working  independently,  would  arrive  at  substan- 
tially the  same  figure  for  ''total  volume  of  trade"  in  the 
United  States  (T  in  the  price  formula).  The  increase  in  the 
general  level  of  commodity  prices,  likewise,  is  not  definitely 
established,  the  advances  shown  by  such  general  index  num- 
bers as  have  been  compiled  presenting  appreciable  variations. 
{See  Table  XY). 

2.  The  Forces  of  Supply  and  Demand.— An  important 
cause  of  the  special  rise  in  the  wholesale  prices  of  farm  com- 
modities is  the  changing  relation  between  supply  and  demand. 
Both  of  these  price  factors  are  in  turn  subject  to  numerous 
fundamental  underlying  influences. 

The  supply  of  farm  products  Is  a  definite  price  factor, 
but  at  different  times  different  conceptions  of  it  are  opera- 
tive. The  ruling  consideration  in  the  minds  of  the  buyers 
and  sellers  at  the  wholesale  markets  may  be  the  acreage 
planted,  the  condition  of  the  growing  crops,  the  visible  supply 


PRICES  OF  AGRICULTURAL  COMMODITIES      351 

in  existence,  or  the  total  production  of  the  year.    The  supply 
may,   moreover,  be   derived  from  the  farms  of  the  United 
States,  or  partly  from  those  of  foreign  agricultural  countries. 
It  is,  likewise,  not  the  actual  supply  of  the  moment  which 
solely  governs  the  prices  of  farm  products,  but  also  the  judg- 
ment of  the  buyers  and  sellers  at  the  ruling  central  markets 
as  to  the  probable  supply  of  the  future.     Traders  are  con- 
tinually discounting  the  future.    Particularly  is  this  the  rule 
in  the  case  of  those  commodities  which  are  dealt  in  on  well- 
organized  exchanges  and  products  which  are  not  perishable. 
Whatever  the  ruling  conception  of  supply  may  be  at  a 
given  moment  it  ultimately  depends  upon  the  total  available 
production  of  the  crops,  and  this  has  in  most  cases  declined 
relative  to  the  country's  needs.     Production  in  the  United 
States  is  especially  important,  for  the  foreign  supplies  of  the 
grains,  meat,  animals  and  wool  were  until  recently  protected 
by  import  duties.    From  the  statistics  of  production  presented 
in  earlier  chapters  it  may  be  seen  that  during  the  years  of 
greatest  price  increase  the  number  of  cattle,  hogs  and  sheep 
in    the    United    States    declined,    and    that    prior    to    the 
year   1914  the  crops  of  corn,  wheat,   barley,   potatoes  and 
wool  increa-sed  less  rapidly  than  the  country's  requirements. 
The  crops  of  oats,  rye,  leaf  tobacco,  cotton  and  rice,  on  the 
other  hand,  continued  to  increase  as  compared  with  earlier 
years.     It  is  significant  that  by  far  the  greatest  price,  ad- 
vances occurred  in  the  case  of  cattle  and  hogs,  and  that  with 
the  exception  of  cotton,  prices  advanced  to  the  greatest  extent 
in  those  crops  where  production  made  least  headway. 

A  multitude  of  reasons  for  the  reduced  rate  of  and  the 
actual  falling  off  in  the  production  of  some  of  the  great  crops 
have  been  assigned — increased  land  values,  the  movement  of 
population  into  the  cities,  higher  farm  wages,  decreased  effi- 
ciency of  farm  laborers  and  a  general  increase  in  cost  of 
agricultural  production,  the  relative  absence  of  intensive  farm- 
ing in  the  United  States,  in  some  instances  depleted  fertility 
and  inadequate  use  of  fertilizers,  in  others  the  scarcity  of 
available  pastures,  or  in  the  wool  trade  the  competition  with 
foreign  growers.    Many  special  forces  influencing  production 


I 


352 


AGKICULTUKAL  COMMERCE 


i  i: 


ii 

f  ! 


were  mentioned  in  the  earlier  chapters  dealing  with  particu- 
lar crops.  Some  writers  attach  particular  importance  to  rain- 
fall, long  extended  cycles  of  rainfall  being  traced.^  These  are 
to  be  distinguished  from  the  direct  effect  of  rainfall  and 
other  weather  conditions,  and  of  crop  pests  and  livestock 
diseases  upon  the  sudden  advances  or  breaks  in  crop  produc- 
tion, and  consequently  upon  the  sudden  price  fluctuations 
which  often  occur  between  crop  seasons. 

The  direct  bearing  of  supply  upon  the  wholesale  prices 
of  farm  products  is  seen  in  the  eagerness  with  which  buyers 
and  sellers  await  crop  and  weather  reports,  and  the  immediate 
rise  or  decline  of  prices  when  unfavorable  or  favorable  reports 
of  this  kind  are  received.     It  may  also  be  seen  in  the  statis- 
tics of  production  and  prices.^    In  the  absence  of  severe  mone- 
tary stringency,  war  or  other  abnormal  conditions,  the  prices 
of  the  great  farm  staples  almost  invariably  rise  when  crops 
in  the  United  States  decline,  and  fall  when  crops  increase. 
Indeed  the  prices  of  no  other  group  of  commodities  are  so 
closely  dependent  upon  the  increase  or  decrease  of  the  supply 
as  are  those  of  farm  products,  for  with  the  exception  of  cotton 
and  wool  they  are  least  subject  to  the  influence  of  general 
business  conditions.     The  wholesale  prices  of  many  manu- 
factured articles  and  raw  materials  for  use  in  manufacture  fre- 
quently increase  rather  than  decline  when  their  supply  in- 
creases because  the  production  of  such  commodities  is  great- 
est when  industry  is  prosperous  and  market  conditions  (de- 
mand) are  favorable.    When  business  is  depressed  the  output 
of  such  products  declines  but  their  prices  frequently  fall 
rather  than  advance  because  market  conditions  are  then  un- 
favorable.    The  supply  of  farm  products  on  the  contrary  is 
not  similarly  gauged  in  accordance  with  business  prosperity, 
the  aim  of  farmers  invariably  being  the  growth  of  a  bumper 
crop. 

It  is  impossible,  however,  to  consider  the  effect  of  supply 

*H.  L.  Moore:    Economic  Cycles:    Their  Law  and  Cause,  chaps. 
2  and  3. 

^See  production  and  price  statistics  for  years  1866  to  1911  in 
Moore:    Economic  Cycles,  pp.  89  to  92. 


PRICES  OF  AGRICULTURAL  COMMODITIES      353 

upon  the  price  of  farm  products  without  at  the  same  time 
considering  the  demand  for  them.     Prices  may  rise  even 
when  a  bumper  crop  is  produced,  and  decline  when  the  crop 
is  small  as  compared  with  the  preceding  year,  should  the  mar- 
ket demand  for  farm  products  suddenly  expand  in  the  former 
or  shrink  in  the  latter  case.    Production  may  increase  rapidly 
but  if  at  the  same  time  there  is  an  even  greater  growth  in  the 
demand  for  farm  products  their  prices  will  advance.    In  1914, 
for  example,  large  crops  of  grain  were  raised  in  the  United 
States  and  grain  prices  would  normally  have  been  lower  than 
in  the  preceding  year,  yet  record  prices  ruled  largely  because 
the  outbreak  of  the  European  War  created  an  unusual  demand 
for  American  grains  and  flour.     Similarly  cotton  production 
gradually  increased  after  1896,  yet  after  1902  cotton  prices 
were  higher  than  during  the  preceding  twelve  years,  chiefly 
because  the  textile  industries  alike  in  the  United  States  and 
abroad  were  rapidly  expanding  and  created  a  demand  which 
until  the  outbreak  of  the  European  War,  with  its  depressino- 
effects  upon  European  textile  mills,  maintained  the  average 
price  of  raw  cotton  above  ten  cents  per  pound. 

The  market  demand  for  the  farm  crops  cannot  be  con- 
cretely expressed  in  the  form  of  bushels,  bales  or  pounds,  but 
it  IS  nevertheless  a  very  definite  price  factor  dependent  upon 
definite  present  or  expected  market  conditions.   Movements  of 
population  from  the  country  to  the  city,  the  growth  of  popu- 
lation at  home  and  abroad,  the  expansion  or  shrinkage  of  food 
requirements  in  food-importing  countries,  the  development 
of  the  world's  cotton  and  woolen  mills,  foreign  tariff  rates 
and  inspection  regulations,  widespread  wars  which  affect  the 
demand  for  as  well  as  the  supply  of  the  world's  farm  products, 
the  state  of  business  prosperity  or  depression,  and  the  increas- 
ing or  decreasing  purchasing  power  of  American  and  foreign 
consumers— all  of  these  considerations  which  variously  affect 
the  ma:  ::et  demand  for  farm  products  are  considered  by  the 
army  of  buyers  and  sellers  whose  bids  and  offers  determine 
wholesale  prices.    As  in  the  case  of  supply  or  production,  the 
market  demand  for  farm  products  is  judged  both  from  the 
standpoint  of  the  present  and  of  the  future.     The  relation 


1 1 


354 


AGKICULTURAL  COMMERCE 


between  supply  and  demand  is  constantly  being  discounted 
in  the  great  wholesale  markets. 

The  increase  of  gold  production  and  the  changing  rela- 
tion between  supply  and  demand  have  been  principally  re- 
sponsible for  the  increase  in  the  general  level  of  prices  and 
for  most  of  the  special  variations  which  have  occurred  in  the 
wholesale  prices  of  farm  products.  There  are  other  factors, 
however,  some  of  which  bear  an  important  relation  to  whole- 
sale prices. 

3.  Speculation  in  Farm  Products. — Ordinarily  there  are 
several  conceptions  of  produce  speculation — one  referring  to 
the  practice  of  purchasing  or  holding  farm  products  for  a 
future  rise  in  spot  prices,  a  second  to  the  making  of  contracts 
calling  for  the  delivery  or  acceptance  of  spot  produce  at  an 
agreed  future  time  and  price,  and  a  third  to  the  purchase  and 
sale  of  "futures"  on  the  speculative  exchange.  The  first  two 
forms  of  speculation  are  not  confined  to  the  wholesale  markets, 
even  the  farmers  not  infrequently  discounting  or  speculating 
on  the  future  in  these  ways,  and  they  are  not  confined  to  the 
trade  in  farm  products.  Such  speculation  is  part  and  parcel 
of  the  process  of  fixing  the  wholesale  prices  of  farm  products 
in  accordance  with  supply  and  demand.  As  was  formerly 
stated  the  supply  which  determines  prices  is  not  alone  the 
amount  which  reaches  the  markets  at  the  moment,  but  also 
the  total  available  crop  and  the  probable  supply  of  the  future 
as  shown  by  reports  on  acreage,  crop  conditions  and  weather 
influences,  and  the  demand  which  determines  prices  is  like- 
wise dependent  upon  probable  future  as  well  as  present  con- 
ditions. Such  speculation  is  universal  and  its  effect  is  not 
artificially  to  advance  or  depress  prices  but  to  adjust  them 
in  strict  accordance  with  the  conditions  of  supply  and  de- 
mand as  judged  by  the  trade.  It  tends  to  eliminate  sharp 
fluctuations  throughout  the  year  and  to  base  prices  upon 
probable  future  as  well  as  upon  present  conditions,  rather 
than  to  arbitrarily  raise  or  lower  prices. 

It  is  against  the  third  form  of  speculation,  the  dealing  in 
cotton  and  grain  "futures"  on  the  speculative  exchanges — 
that  the  charge  of  being  an  arbitrary  price  factor  is  most  fre- 


PRICES  OF  AGRICULTURAL  COMMODITIES      355 

quently  made.  The  effects  of  this  so-called  organized  specu- 
lation upon  spot  prices  has  been  more  fully  discussed  in  Chap- 
ter VII.  Briefly  summarized  its  usual  effects  are  not  to  ar- 
bitrarily raise  or  reduce  the  level  of  spot  prices  at  the  whole- 
sale markets,  but  (1)  to  fully  discount  the  future  and  thereby 
reach  the  level  warranted  by  fundamental  conditions  sooner 
than  it  would  otherwise  be  reached;  (2)  to  steady  prices;  (3) 
to  enforce,  so  far  as  possible  a  world  price  for  cotton  and  the 
speculative  grains;  and  (4)  to  reduce  the  margin  between 
wholesale  prices  and  the  prices  received  by  the  farmers  or 
paid  by  millers,  spinners  or  other  consumers. 

While  these  are  the  normal  effects  of  organized  specula- 
tion it  sometimes  exerts  a  temporary  influence  upon  spot 
prices  not  warranted  by  actual  conditions  of  supply  and  de- 
mand. Usually,  however,  the  manipulation,  corners  and  sim- 
ilar practices  here  referred  to  are  the  result  of  produce  gam- 
bling rather  than  of  legitimate  speculation. 

4.  Manipulation  and  Comers.— While  produce  specula- 
tors ordinarily  endeavor  to  profit  by  the  skillful  forecasting  of 
natural  market  conditions,  a  gambling  element  sometimes  is 
able  to  temporarily  manipulate  the  price  of  "futures"  arti- 
ficially, and  since  spot  and  future  prices  are  interrelated  such 
manipulation  may  artificially  inflate  or  depress  the  whole- 
sale prices  of  cotton  and  grain.  That  its  effects,  however, 
are  temporary  has  been  repeatedly  shown  by  the  refusal  of 
spot  prices  to  blindly  follow  unduly  inflated  or  depressed 
"future"  prices. 

Corners  likewise  affect  prices  differently  than  legitimate 
speculation,  their  intent  being  to  compel  the  payment  of  in- 
flated prices.  Real  corners  of  actual  grain,  cotton  or  other 
farm  crops,  however,  are  fortunately  rarely  attempted  because 
the  probabilities  of  failure  are  great  and  the  amount  of  capital 
required  stupendous.  Speculative  corners,  consisting  in  the 
cornering  of  the  futures  maturing  in  a  particular  month, 
occur  more  frequently  and  are  more  readily  carried  out,  but 
their  price  effects  are  short-lived  because  the  victims  make 
speedy  settlement.  Spot  prices  in  the  central  markets  of  the 
United  States  as  a  whole,  moreover,  do  not  follow  the  inflated 


ll'  • 


356 


AGRICULTURAL  COMMERCE 


prices  at  which  the  futures  of  a  particular  month  may  sell 
during  a  speculative  corner.  The  price  effects  of  such  a  cor- 
ner are  limited  alike  in  extent  and  time.  Its  evils  lie  chiefly 
in  the  losses  of  the  victims  who  are  "caught  short"  and  in  the 
resulting  mismanagement  of  legitimate  hedging  transactions. 

5.  Combination  and  Consolidation. — Though  it  is  charged 
at  times  that  the  rise  of  prices  in  the  United  States  is  due  to 
the  exercise  of  monopoly  power  by  combinations  of  producers, 
the  influence  of  such  combination  upon  the  wholesale  prices 
of  farm  products  has  never  been  of  widespread  importance. 
Many  cooperative  associations  of  grain,  fruit,  vegetables  and 
livestock  growers  have  been  formed,  but  their  primary  price 
influence  has  been  upon  growers'  local  prices  and  upon  grow- 
ers' profits  rather  than  upon  the  wholesale  prices  paid  in  the 
central  markets.  They  have  at  times  instilled  competition 
into  the  local  markets  and  they  have  enabled  many  growers  to 
ship  direct  to  the  central  markets,  but  they  do  not  possess  a 
monopoly  power  over  wholesale  prices  and  make  no  serious 
effort  to  inflate  prices  by  withholding  their  crops  from  the 
market.  Even  the  cooperative  fruit  exchanges  which  direct 
the  shipment  of  fresh  fruit  have  thus  far  endeavored  to  in- 
crease their  members'  profits  by  reducing  distribution  costs 
and  gathering  accurate  information  as  to  market  needs  rather 
than  by  endeavoring  to  dictate  wholesale  prices.  Cooperative 
wool  marketing  has  likewise  had  relatively  little  effect  upon 
the  prices  paid  at  the  leading  central  wool  markets. 

The  growers'  unions  which  have  sprung  up  in  the  cotton 
and  leaf  tobacco  trades  have,  at  times,  had  a  somewhat 
greater  influence  on  wholesale  prices.  The  cotton  unions  have 
sometimes  urged  their  members  to  adhere  to  suggested  prices, 
to  store  their  crop,  restrict  the  output  of  cotton,  and  sell 
through  cooperative  warehouses.  Their  effect  on  wholesale 
cotton  prices  has  sometimes  been  appreciable,^  but  has  on  the 
whole  been  of  relatively  minor  importance  and  has  never 
approached  that  of  monopoly  power.  The  cotton  unions  have 
been  most  active  in  years  of  declining  prices  and  have  en- 
deavored to  prevent  severe  depressions  rather  than  to  force 

^See  chap,  v,  p.  108. 


PRICES  OF  AGRICULTURAL  COMMODITIES     357 

the  payment  of  increased  prices.  The  leaf  tobacco  growers' 
associations  of  the  southern  states  exerted  an  important  in- 
fluence over  prices  during  the  years  1904  to  1908  when  by 
storing  their  crops  and  restricting  acreage  they  compelled 
the  large  tobacco  manufacturers  and  exporters  to  pay  a  higher 
level  of  prices. 

While  the  increase  in  the  prices  of  farm  products  has  on 
the  whole  not  been  caused  by  growers'  combinations,  it  is  also 
true  that  few  of  them  have  suffered  from  combinations  of 
buyers  or  industrial  consolidations.     There  are  no  combina- 
tions of  grain,  cotton,  wool,  fruit  or  produce  buyers  or  deal- 
ers and  no  flour,  cotton,  or  woolen  textile  mill  consolidations 
with  a  monopoly  power  sufficiently  strong  to  permanently  de- 
press the  prices  ruling  in  the  wholesale  markets.    All  of  these 
industries  and  trades  are  competitive.     The  presence  of  a 
limited  number  of  large  meat-packing  concerns  at  the  cen- 
tral livestock  markets  of  the  West  greatly  reduces  the  amount 
of  competition  at  these  markets,  yet  it  is  significant  that 
wholesale  prices  of  livestock  have  advanced  to  a  greater  extent 
than  those  of  grain  or  cotton.     Leaf  tobacco  prices  are  the 
only  important  exception  to  the  general  rule  that  wholesale 
prices  of  farm  products  have  not  been  seriously  depressed  by 
the  restriction  of  competition.    The  leaf  tobacco  prices  of  the 
years   1899   to   1903   were  unduly  low,   partly  because  the 
growth  of  the  so-called  "tobacco  trust"  diminished  the  com- 
petition among  buyers. 

6.  Cold  Storage.— The  storage  of  fruits,  eggs,  dairy  prod- 
ucts and  many  varieties  of  farm  produce  in  cold  storage 
warehouses  has  become  an  important  price  factor  in  that  it 
levels  the  prices  of  such  perishable  commodities  from'  one 
season  to  another.  The  storage  of  eggs,  for  example,  creates 
a  much  increased  market  in  the  spring  months  when  vast 
numbers  of  eggs  especially  suited  to  storage  are  produced,  and 
consequently  keeps  their  price  level  above  what  it  would 
otherwise  be.  These  cold  storage  eggs  are  gradually  placed 
on  the  market  during  the  summer  and  winter  months,  when 
the  supply  of  fresh  eggs  is  insufficient  to  meet  requirements, 
and  consequently  keep  the  level  of  prices  during  these  months 


n 


1^ 


i 


358 


AGKICULTURAL  COMMERCE 


lower  than  it  would  otherwise  be.  Since  perishable  farm 
products  are  seldom  held  in  the  cold  storage  warehouses 
longer  than  from  one  producing  season  to  the  next,  even  in 
those  states  where  statutes  limiting  such  storage  to  a  definite 
period  have  not  been  enacted,  it  would  seem  that  cold  storage 
has  not  increased  the  average  price  of  such  commodities 
throughout  the  year  but  has  tended  to  reduce  fluctuations  be- 
tween seasons  and  greatly  increase  both  production  and  con- 
sumption. There  is  no  convincing  evidence  that  the  increase 
in  the  prices  of  perishable  farm  products  since  1896  was 
caused  by  the  cold  stgrage  industry. 

7.    Transportation  Charges.— Railroad  freight  rates  influ- 
ence the  wholesale  prices  of  farm  products  in  various  ways, 
(a)  They  frequently  constitute  an  appreciable  percentage  of 
the  total  prices  paid  at  the  central  markets,  but  their  im- 
portance in  this  respect  varies  widely  as  between  particular 
commodities  and  markets.    Rates  on  grain,  hay,  fruit,  vege- 
tables and  eggs,  for  example,  usually  are  important  price 
factors,  while  those  on  cotton,  leaf  tobacco  and  livestock  con- 
stitute but  a  small  proportion  of  the  prices  realized  at  the 
central  markets.     The  difference  is  in  most  instances  due 
chiefly  to  the  relatively  low  intrinsic  value  of  the  former 
group  of  products  as  compared  with  their  bulk,  and  to  the 
relatively  high  intrinsic  value  of  the  latter  group.     A  rate 
of  from  8  to  15  cents  per  100  pounds  of  grain  shipped  from 
the  West  to  Xew  York,  for  instance,  constitutes  an  important 
percentage  of  the  New  York  price  for  a  bushel  of  wheat  or 
corn,  but  rates  ranging  from  25  to  55  cents  per  100  pounds  of 
cotton  shipped  from  the  larger  central  markets  of  the  South 
to  Boston  constitute  but  a  small  fraction  of  the  price  paid  for 
one  pound  of  cotton.    The  entire  railroad  rate,  however,  is  not 
always  included  in  the  wholesale  price  for  farm  products,  for 
when  large  quantities  move  over  water  or  rail-water  routes, 
the  higher  all-rail  rates  can  be  included  in  the  price  only- 

in  part. 

What  has  been  said  in  connection  with  railroad  freight 
charges  applies  also  to  ocean  freight  charges.  Ocean  freight 
rates  are  usually  reflected  in  the  difference  between  prices 


PRICES  OF  AGRICULTURAL  COMMODITIES     359 

in  the  central  markets  of  the  United  States  and  foreign  coun- 
tries, but  since  many  foreign  markets  obtain  their  supply  of 
farm  products  only  partly  from  the  United  States  and  the 
rates  from  all  American  shipping  points  are  not  uniform,  the 
entire  freight  charge  is  not  at  all  times  reflected  in  price 
differences.  There  is,  moreover,  no  uniform  rule  as  to  the 
incidence  of  export  freight  charges.  The  extent  to  which 
they  are  ultimately  paid  by  the  American  exporter  or  pro- 
ducer or  by  the  foreign  purchaser  depends  largely  upon  their 
relative  needs  and  varies  at  different  times.  In  the  case  of 
agricultural  exports  the  greatest  portion  of  them  is  usually 
shifted  to  the  foreign  buyer  either  directly  or  in  the  prices 
paid  by  him,  but  when  conditions  of  supply  and  demand  are 
unfavorable  to  the  United  States  the  proportion  paid  by  for- 
eign buyers  declines. 

(b)  Freight  rates  are  also  responsible  for  a  portion  of 
the  difference  between  the  prices  ruling  at  one  central  market 
as  compared  with  another.  Thus,  the  grain  prices  at  the  sea- 
board markets  are  higher  than  those  at  the  primary  markets 
and  the  prices  at  the  various  primary  markets  differ  some- 
what, partly  because  of  differing  freight  charges.^ 

,  (c)  A  general  increase  or  decrease  of  freight  charges  on 
a  given  farm  product  is  reflected  in  its  prices.  Freight 
charges  were  not,  however,  the  cause  of  the  increase  in  prices 
since  1896,  for  it  is  only  recently  that  the  rates  of  the  east- 
ern trunk  lines  have  been  generally  increased.  The  general 
level  of  freight  sates  declined  until  1899-1900  and  then  re- 
mained practically  stationary  until  the  decision  of  the  5  per 
cent,  rate  case  in  1914.  There  were  individual  changes  prior 
to  this  decision,  but  not  in  sufficient  numbers  to  affect  the 
wholesale  prices  of  farm  products  except  at  individual  points. 
Individual  rate  increases  differ  from  general  increases  in  that 
they  frequently  affect  the  profits  of  buyers  or  sellers  rather 
than  wholesale  prices. 

Railroad  freight  charges  do  not  consist  solely  of  freight 
rates,  but  also  of  special  charges  such  as  those  which  are  at 
times  paid  for  switching,  storage  and  demurrage,  loading  and 

*  See  chap,  iv,  p.  91. 


360 


AGRICULTURAL  COMMERCE 


Ml 
'  I 


unloading,  elevator  services,  in-transit  privileges,  cotton  com- 
pression, spotting  cars,  reconsignment  and  refrigeration.  The 
practice  of  the  carriers  regarding  most  of  these  charges  varies 
greatly.  They  may  be  absorbed  by  the  carriers  or  shifted  to 
the  shipper;  many  special  services  may  be  performed  free  of 
charge  at  some  points  although  subjected  to  charges  at  others ; 
and  when  special  charges  are  collected  there  is  no  uniformity 
as  to  their  amounts.  Since  wholesale  markets  and  individual 
dealers  are  in  many  cases  in  competition  with  each  other  there 
is  no  general  rule  as  to  the  inclusion  of  these  charges  in  whole- 
sale prices.  They  are  added  in  many  instances,  but  at  times 
their  principal  effect  is  upon  the  profits  of  the  individual 
buyers  or  sellers  from  whom  they  are  collected  by  the  car- 
riers. 

8.  Commercial  Costs.— The  price  effects  of  the  trade  costs 
incurred  at  the  central  markets  such  as  commission  or  broker- 
age, insurance,  inspection  and  grading,  weighing,  storage, 
yardage  and  feeding  costs,  are  similar  to  those  of  freight 
charges.  In  so  far  as  they  are  general  in  a  given  trade  they 
are  in  part  reflected  in  the  general  level  of  prices.  Storage 
charges  incurred  at  the  primary  markets,  for  example,  usu- 
ally have  a  direct  bearing  upon  grain  prices  in  the  later  as 
compared  with  the  earlier  months  of  the  crop  season.  The 
entrance  of  more  dominant  forces  may,  however,  prevent  the 
inclusion  of  such  charges  in  prices.  The  extent  to  which 
they  are  reflected  in  the  wholesale  prices  of  farm  products  or 
are  shifted  so  as  to  come  directly  out  of  the  profits  of  local 
shippers  or  of  the  buyers  and  sellers  at  the  central  markets 
varies  from  time  to  time  and  at  different  markets. 

9.  American  Import  Duties.— The  recent  increase  in  the 
wholesale  prices  of  farm  products  was  not  directly  due  to  the 
imposition  of  protective  import  duties,  for  these  duties  have 
not  been  increased  since  the  enactment  of  the  Dingley  Act 
of  1S97.  With  the  exception  of  temporary  interruptions  the 
policy  of  protecting  farm  products  was  one  of  long  standing 
and  prevailed  during  many  periods  of  declining  as  well  as  of 
advancing  prices. 

It  is  claimed,  however,  that  by  restricting  imports  the 


PRICES  OF  AGRICULTURAL  COMMODITIES      361 

high  duties  on  many  farm  products  restricted  the  available 
supply  and  indirectly  caused  prices  to  increase.  It  is  only 
in  this  indirect  way  that  there  could  be  any  relation  between 
the  tariff  on  farm  products  and  the  recent  advance  in  their 
prices.  This  possible  effect  of  import  duties,  however,  is 
greatly  diminished  in  the  case  of  many  agricultural  commodi- 
ties. The  protective  rates  on  grain,  meat,  animals,  meat  prod- 
ucts and  eggs  throughout  the  earlier  years  of  their  existence 
and  until  after  the  close  of  the  nineteenth  century  had  prac- 
tically no  effect  upon  prices  in  the  United  States,  for  the  pro- 
duction of  a  huge  domestic  surplus  and  the  practical  absence 
of  large  outside  sources  of  supply  made  the  importation  of 
these  products,  even  had  they  been  on  the  free  list,  entirely 
improbable.  Small  quantities  were  imported  in  later  years, 
yet  the  amounts  imported  even  after  the  removal  of  the 
duties  in  1913  have  thus  far  been  too  small  to  affect 
prices  throughout  the  United  States.  The  effect  of  the  tariff 
on  the  prices  of  fruits,  domestic  leaf  tobacco  and  dairy  prod- 
ucts has  also  been  restricted,  because  the  importation  has 
been  confined  mainly,  although  not  entirely,  to  special  varie- 
ties not  produced  on  a  large  scale  in  the  United  States  and 
has  always  been  small  in  comparison  with  the  huge  domestic 

output. 

The  price  effects  of  the  tariff  on  imported  wool  and  sugar 
have  been  greater,  because  these  commodities  come  into  more 
direct  competition  with  the  domestic  products  of  the  United 
States.^  The  protection  granted  to  manufacturing  industries 
may  also  have  had  an  indirect  effect  upon  the  prices  of  farm 
products  in  that  they  created  a  larger  home  demand  for  raw 
materials  and  foodstuffs  by  promoting  home  industries  and 
the  growth  of  a  large  industrial  population. 

The  price  effects  of  the  tariff  rates  at  the  present  time  and 
in  the  near  future  are  conjectural  because  conditions  have 
been  abnormally  disturbed  by  the  European  ^Yar.  The  Act 
of  1913,  which  is  now  in  effect,  will  maintain  the  prices  of 
domestic  farm  products  even  less  than  they  were  maintained 
by  previous  acts  because  it  places  grain,,  flour,  livestock,  meats 

^  See  chap,  xii,  p.  207. 


I 


362 


AGRICULTTIRAL  COMMERCE 


and  wool  on  the  free  list,  reduces  the  rates  on  sugar  and  pro- 
vides for  its  reversion  to  the  free  list  on  May  1,  1916 ;  reduces 
the  rates  on  leaf  tobacco  and  fruits;  and  generally  "revises 
downward'^  the  rates  on  manufactures. 

10.  General  Business  Conditions.— One  of  the  striking 
differences  between  farm  commodities  and  raw  "producers 
materials"  or  manufactures  is  that  the  prices  of  many  of  the 
former  are  less  dependent  upon  general  business  prosperity 
than  those  of  the  latter.  Raw  cotton  and  wool  are  important 
exceptions  because  the  demand  for  them  depends  directly 
upon  the  operation  of  the  world's  mills.  The  prices  of  the 
great  food  crops,  however,  and  of  leaf  tobacco  are  influenced 
to  a  much  smaller  extent  by  industrial  depression  or  prosper- 
ity, for  food  is  a  necessity  and  only  the  most  dire  depression 
greatly  reduces  the  consumption  of  tobacco. 

Yet  even  the  prices  of  foodstuffs  are  influenced  somewhat 
by  general  business  conditions.  Industrial  depression  may  so 
reduce  the  purchasing  power  of  many  consumers  as  to  shift 
their  demand  from  the  more  to  the  less  expensive  foods  and 
cause  them  to  practice  food  economies.  Industrial  prosperity 
on  the  contrary  stimulates  wastefulness,  careless  buying  and 
an  abnormal  demand  for  high-grade  foods.  Business  depres- 
sion may,  moreover,  be  accompanied  by  a  severe  financial 
panic  during  which  the  dealers  who  usually  accept  almost 
unlimited  quantities  of  the  great  farm  staples  are  unable  to 
finance  their  transactions.  During  the  crop-moving  season 
of  1907  the  price  of  grain  suffered  an  abrupt  temporary  de- 
cline because  of  the  severe  "money  panic''  which  caused  a 
shortage  of  crop-moving  funds. 


Growers'  Local  Prices 

The  prices  received  by  the  growers  of  farm  products  sold 
in  local  markets  are  based  directly  upon  the  ruling  wholesale 
prices  of  the  central  markets  to  which  they  are  shipped  by  the 
local  buyers.  They  are  consequently  subject  to  all  the  price 
influences  which  determine  the  central  market  prices,  with  the 


1   II 


i 


PRICES  OF  AGRICULTURAL  COMMODITIES     363 


exception  that  they  fluctuate  less  frequently.  They  do  not 
follow  the  central  market  prices  with  absolute  precision,  they 
are  not  subject  to  all  the  myriad  of  fluctuations  which  occur  in 
the  central  markets  throughout  each  business  day;  but  every 
long  extended  advance  or  decline  and  every  daily  price  change 
is  reflected  in  the  local  markets,  and  in  case  of  substantial 
price  changes  at  the  central  markets,  local  buyers  may  read- 
just their  prices  several  times  in  a  single  day.  This  relation- 
ship between  local  and  central  market  prices  is  particularly 
close  in  the  grain  and  cotton  trades  because  the  purchasing 
and  distribution  organization  in  these  trades  has  been  devel- 
oped to  a  high  point  of  efficiency.  It  is  somewhat  less  close 
in  the  local  livestock,  wool,  leaf  tobacco,  fruit,  produce  and 
other  agricultural  trades,  but  the  local  prices  of  these  com- 
modities are  nevertheless  based  primarily  upon  the  wholesale 
prices  prevailing  in  the  great  central  markets. 

In  basing  local  prices  upon  central  market  prices,  various 
deductions  are  made,  the  most  important  being  (1)  freight 
charges  incurred  in  shipping  the  products  to  the  central  mar- 
kets, (2)  operating  costs  of  the  local  buyers  including  wages, 
insurance,  weighing,  inspection  and  cartage,  (3)  interest, 
rents,  and  any  other  local  capital  costs,  and  (4)  an  additional 
amount  to  yield  a  profit.  Local  grain  buyers  usually  deduct 
from  the  primary  market  prices  the  freight  charges  incurred 
plus  an  additional  number  of  cents  per  bushel  to  cover  all 
other  costs  and  yield  a  profit.^  The  local  cotton  buyers  of  the 
large  exporting  or  cotton  brokerage  concerns  frequently  are 
supplied  with  so-called  "limits"  which  they  deduct  or  add  to 
the  price  at  which  cotton  "futures"  are  selling  on  the  New 
York,  New  Orleans  or  Liverpool  exchanges.^  The  methods 
of  making  the  deductions  from  the  central  spot  or  contract 
prices  varies,  but  the  practice  of  basing  local  prices  upon  cen- 
tral market  prices  is  the  general  rule  except  in  unimportant 
local  markets  which  have  no  regular  trade  connection  with 
the  outside  world. 

The  amounts  deducted  from  the  central  market  prices  are 

^  See  chap,  iii,  pp.  39,  40. 
'See  chap,  v,  pp.  Ill,  112. 


I 


i        I 


364 


AGRICULTUKAL  COMMERCE 


not  absolutely  inflexible,  for  they  are  to  some  extent  subject 
to  local  influences.  lu  the  local  grain  trade,  for  example, 
the  number  of  cents  per  bushel  deducted  in  addition  to  freight 
charges  at  a  given  local  narket  is  influenced  in  part  by  the 
amount  of  competition  btcween  local  buyers,  the  presence  of  a 
cooperative  farmers'  elevator,  the  ability  of  farmers  to  sell  in 
a  nearby  rival  market,  the  extent  to  which  certain  farmers  are 
holding  their  grain  in  storage,  and  the  intelligence  of  the 
farming  community.  Local  buyers  desire  the  maximum 
profit,  but  local  influences  affect  the  allowance  for  profit 
which  they  arc  able  to  include  in  the  amount  subtracted  from 
the  central  market  price. 

The  growers'  cost  of  production  does  not  directly  deter- 
mine the  prices  of  the  great  farm  staples,  because  the  farmers 
do  not  determine  tlio  prices  which  they  receive.  Their  posi- 
tion is  radically  different  from  that  of  the  huge  industrial 
concerns  some  of  which  possess  sufficient  monopoly  power  to 
control  in  a  large  measure  the  prices  which  they  receive  for 
their  wares.  Agricultural  prices  are  competitive,  and  are 
therefore  influenced  by  the  growers'  costs  of  production  only 
indirectly  in  that  the  failure  to  pay  the  farmers  profitable 
prices  will  affect  the  amount  of  given  products  produced  by 
them.  Prices  may  fall  below  the  cost  basis  temporarily  and 
even  for  a  succession  of  seasons,  but  low  prices  in  the  long 
run  affect  production  or  supnly  by  causing  reduced  acreage  or 
a  shift  from  one  crop  to  another. 

Retail  Prices 

Many  of  the  principal  agricultural  commodities  are  not 
retailed  in  their  crude  condition  and  consequently  retail  prices 
are  not  regularly  quoted  except  on  the  finished  products  into 
which  they  are  converted.^  It  is  not  intended  to  describe 
fully  the  manner  in  which  the  retail  prices  of  these  finished 
products  are  determined  for  they  are  more  appropriately  in- 
cluded in  a  volume  dealing  with  the  trade  in  manufactures. 

Some  farm  products,  however,  such  as  fruit,  vegetables 

'See  p.  16. 


m 


PRICES  OF  AGRICULTURAL  COMMODITIES      365 

and  produce,  dairy  products,  poultry,  corn  and  oats,  hay  and 
straw  are  more  commonly  sold  in  the  retail  markets.  Their 
retail  prices  are  based  primarily  upon  the  wholesale  prices 
of  the  central  markets,  various  costs  and  an  allowance  for 
profit  being  added  to  the  latter  instead  of  being  subtracted 
as  in  the  case  of  growers'  local  prices.  The  retail  costs  which 
are  so  added  include  items  such  as  interest  and  rents,  retail 
selling  expenses,  insurance,  delivery  costs,  and  losses  resulting 
from  the  decay  of  perishable  produ'jts  or  insufficient  demand 
for  those  of  inferior  quality. 

The  computation  is  not,  however,  as  exact  as  in  the  case 
of  growers'  prices  because  the  retail  costs  incurred  as  well  as 
the  profits  desired  are  in  many  instances  interwoven  with 
the  aggregate  costs  and  profits  resulting  from  the  handling  of 
a  large  variety  of  other  goods  retailed  in  the  same  store. 

The  retail  prices  of  farm  products  are  also  affected  by  local 
or  special  influences.  The  keenness  of  retail  competition,  for 
example,  affects  the  allowance  for  profit  Vviiich  can  be  added  to 
the  wholesale  price  in  a  given  retail  market.  Differences  in 
the  purchasing  power  of  retail  customers,  moreover,  may 
cause  retail  price  variations  between  different  cities  or  even 
between  different  sections  of  the  same  city.  While  the  whole- 
sale or  central  market  prices  throughout  the  United  States 
fluctuate  in  relatively  close  harmony,  there  are  no  nation- 
wide retail  prices  of  farm  products.  The  margin  between 
retail  and  wholesale  prices  of  farm  products  varies  to  an 
amazing  degree  and  the  extent  to  which  retail  prices  have  ad- 
vanced varies  widely  in  different  parts  of  the  country.  The 
United  States  Bureau  of  Labor  Statistics  reports,  for  example, 
that  the  retail  prices  of  potatoes  in  1913  were  45.1  per  cent, 
above  the  average  for  the  decade  1890-1899  in  the  North  At- 
lantic States,  as  compared  with  46.1  per  cent,  in  the  South 
Atlantic  states,  48.7  per  cent,  in  the  North  Central  states, 
49.1  per  cent,  in  the  South  Central  states,  and  99.4  per  cent, 
in  the  Western  states ;  and  that  the  retail  prices  of  poultry  in 
these  geographical  divisions  advanced  67.4  per  cent.,  59,5  per 
cent.,  92.1  per  cent.,  87.6  per  cent,  and  34.9  per  cent,  re- 
spectively. 


366 


AGRICULTURAL  COMMERCE 


The  retail  prices  of  crude  farm  products  sometimes  lag 
behind  their  wholesale  prices  temporarily,  because  the  keen 
competition  between  the  retailers  may  induce  some  of  them 
to  continue  existing  prices  until  stocks  on  hand  are  disposed 
of  even  though  wholesale  prices  have  meanwhile  risen.     It 
also  happens  at  times  that  when  the  retail  prices  are  raised 
they  undergo  a  greater  advance  than  the  wholesale  prices 
upon  which  they  are  based.    The  retail  prices  of  fresh  eggs  in 
1913,  for  example,  as  reported  by  the  United  States  Bureau  of 
Labor  Statistics,  were  74.8  per  cent,  above  the  average  for 
the  decade  1890  to  1899,  while  the  wholesale  prices  during 
the  same  period  advanced  66.5  per  cent. ;  and  the  retail  and 
wholesale  prices  of  milk  advanced  40.2  per  cent,  and  38.4  per 
cent,  and  of  creamery  butter  53.2  per  cent,  and  about  42  per 
cent,  respectively.     The  bureau  reported  the  average  retail 
prices  of  the  fifteen  principal  foodstuffs,  crude  and  prepared, 
to  have  advanced  67  per  cent,  as  compared  with  an  incr^se 
of  37.1  per  cent,  in  the  average  wholesale  prices  of  foods. 

The  greater  relative  advance  in  retail  prices  was  due  prin- 
cipally to  the  increase  in  rents  and  in  retail  selling  and  de- 
livery costs.   Retail  costs  were  especially  affected  by  the  grow- 
ing  practice  of  selling  and  delivering  small  lots.    The  entire 
system  of  retailing  through  small  retail  stores— appalling  m 
number— has,  moreover,  proved  expensive  to  the  consumers. 
It  has  occasioned  a  wasteful  duplication  of  facilities  and  sell- 
ing forces,  and  a  margin  between  retail  and  wholesale  prices 
sufficiently  wide  to  provide  a  livelihood  for  a  multitude  of  re- 
tailers each  of  whom,  with  some  exceptions,  is  dependent 
upon  a  limited  number  of  customers.    While  wholesale  dealers 
of  New  York  and  Philadelphia  usually  add  from  5  to  11 
per  cent,  to  the  prices  which  they  pay  for  agricultural  food 
products  the  average  amount  added  to  the  wholesale  dealers 
prices  by  the  retail  trade  is  reported  to  be  at  least  33  ^  per 
cent,  in  the  former  and  45  per  cent,  in  the  latter  market.^ 

^  Wholesale  index  number  included  from  53  to  57  foods. 

2  The  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  July,  1913,  pp.  151  and  205.  For  statistics  of  price  margins 
see  references  marked  with  an  *  in  th©  accompanying  bibliography. 


PRICES  OP  AGRICULTURAL  COMMODITIES      36T 


BIBLIOGRAPHY 


Babson,  Roger  W.     Pactors  Affecting  Commodity  Prices,  in 

The  Annals  of  the  Ainerican  Academy  of  Political  and 

Social  Science,  Sept.,  1911  (1911). 
Fisher,  Irving.     The  Purchasing  Power  of  Money  (1913). 
Kemmerer,  E.  W.     Money  and  Credit  Instruments  in  Their 

Relation  to  General  Prices  (1907). 
*KiNG,  C.  L,     Trolley  Light  Freight  Service  and  Philadelphia 

Markets  (Oct.,  1912). 
Mitchell,  W.  C.     Business  Cycles  (1913). 
Moore,  Henry  L.     Economic  Cycles:  Their  Law  and  Cause 

(1914). 
Paish,  Sir  George.     Prices  of  Commodities  in  1914,  Journal 

of  Royal  Statistical  Society  (Mar.,  1915). 
*SuLLrvAN,  J.  W.     Markets  for  the  People  (1913). 
*Weld,  L.  D.  H.    Studies  in  the  Marketing  of  Farm  Products, 

University  of  Minnesota  Studies  in  the  Social  Sciences, 

No.  4  (Feb.,  1915). 
*!N'ew  York  Mayor's  Market  Commission:    Report  of  (1913). 
*United  States  Bureau  of  Crop  Estimates :    The  Monthly  Crop 

Report  (for  current  farm  prices)    (monthly  since  May, 

1915). 
United  States  Bureau  of  Foreign  and  Domestic  Commerce: 

Statistical  Abstract  of  United  States,  1913    (for  price 

statistics)   (1914). 
*United  States   Bureau  of  Labor  Statistics:     Butter  Prices, 

from  Producer  to  Consumer,  Bulletin  No.  164  (1915). 

Retail  Prices  1890  to  December,  1913  (1914). 

* Sugar  Prices  from  Producer  to  Consumer,  Bulletin  No. 

121  (1913). 
Wheat  and  Flour  Prices  from  Producer  to  Consumer, 


*_ 


Bulletin  No.  130  (1914). 

-Wholesale  Prices  1890  to  1913  (1914). 


United  States  Department  of  Agriculture,  Year  Book  (annual) 
Statistics  of  farm  prices. 

*United  States  Industrial  Commission,  Distribution  and  Mar- 
keting of  Farm  Products   (1901),  Vol.  6. 
See  also  Statistical  Sources  listed  on  pp.  10,  11,  92,  93,  134, 

135^200,  201,  221,  238,  258. 

*Beferences  designated  by  an  *  contain  statistics  of  price  margins* 


3.Vr^^-      -'-- 


N 


I 


I 


sia 


CHAPTER   XVIII 

FOEEIGN   MAEKETS    AND    MAEKET    INFLUENCES 

The  methods  of  exporting  and  importing  the  principal 
agricultural  commodities  and  the  volume  of  the  foreign  trade 
in  them  were  described  in  the  preceding  chapters.  It  is  de- 
sirable, however,  to  discuss  at  greater  length  the  entire  for- 
eign trade  of  the  United  States  in  these  as  well  as  the  many 
additional  farm  products  which  are  exported  and  imported, 
the  tendencies  which  are  in  course  of  development,  and  par- 
ticularly the  foreign  markets  and  market  influences  affecting 
the  agricultural  exports.  The  description  of  trade  organiza- 
tion was  confined  strictly  to  the  crops  in  the  condition  which 
they  are  brought  to  market  from  the  country's  farms  and 
ranches — packing-house  products,  flour,  canned  goods  and 
dairy  products  and  similar  commodities  being  excluded  be- 
cause they  are  manufactures  or  semi-manufactures  and  are 
marketed  differently  from  the  raw  farm  products.  Such  pre- 
pared foodstuffs  must,  however,  be  included  among  the  agri- 
cultural exports  as  their  exportation  has  for  many  years  borne 
a  direct  and  important  relation  to  the  foreign  as  well  as  to 
the  domestic  trade  in  unprepared  foodstuffs. 


Historical  Development  of  Agricultueal  Exports  * 

Priar  to  the  Treaty  af  Ghent. — Agricultural  commodi- 
ties were  among  the  first  American  exports,  southern  leaf  to- 
bacco  and   rice   and   northern   grain   and   provisions   being 

*For  detailed  history  of  the  foreign  trade,  including  farm  ex- 
ports, see  Emory  E.  Johnson :  History  of  Domestic  and  Foreign  Com- 
merce of  the  United  States,  vol.  ii.  The  chapters  on  the  Foreign 
Trade  from  1790  to  1913  are  by  the  writer. 

368 


FOREIGN  MARKETS  AND  INFLUENCES        369 

shipped  to  England,  Continental  Europe  and  the  West  Indies 
throughout  the  entire  colonial  trade  era.  During  the  Revo- 
lutionary War  and  the  years  of  the  American  Confederacy  the 
agricultural  export  trade  was  in  a  depressed  condition.  With 
the  exception  of  the  years  1808  and  1814,  however,  foodstuffs 
were  exported  in  even  larger  quantities  during  the  period 
1790  to  1815  than  during  the  colonial  era.  Agricultural  pro- 
duction increased  in  the  United  States  and  the  European  wars 
and  various  European  crop  failures  caused  an  unusual  for- 
eign demand.  Indeed  the  leadership  in  the  northern  states 
was  shifted  definitely  from  the  fisheries  to  the  agricultural 
foodstuffs — flour,  wheat,  corn  and  provisions. 

A  new  farm  staple — cotton — moreover,  assumed  the  lead- 
ership in  the  export  trade  of  the  southern  states  in  1803,  the 
invention  of  the  Whitney  gin  in  1793  soon  making  upland 
cotton  the  king  of  American  exports.  Meanwhile  southern 
leaf  tobacco  .and  rice  continued  to  be  shipped  abroad  in  ap- 
preciable quantities.  The  dominant  position  of  the  agricul- 
tural exports  was  evident  in  1807  when  the  country's  foreign 
trade  reached  its  maximum  point  prior  to  the  Treaty  of 
Ghent,  77  per  cent,  of  the  value  of  all  domestic  exports  con- 
sisting of  agricultural  commodities. 

The  Period  1815-1818.— Agricultural  exports  rose  to  an 
even  higher  level  in  the  years  1815  to  1818,  the  surplus  cot- 
ton, flour,  wheat,  tobacco,  rice,  provisions  and  Indian  corn 
which  had  accumulated  during  the  War  of  1812  being  released 
shortly  after  the  declaration  of  peace.  In  1818  farm  com- 
modities valued  at  over  $62,800,000  or  85  per  cent,  of  the 
entire  foreign  trade  in  domestic  products  were  shipped  abroad. 
One-half  of  the  total  consisted  of  raw  cotton,  which  had  far 
outstripped  all  other  agricultural  exports. 

The  Period  1818-1830.— The  years  from  1818  to  1830 
constituted  an  era  of  general  trade  recession  during  which 
the  foreign  trade  in  all  the  agricultural  commodities  as  well 
as  other  domestic  products,  with  the  exception  of  cotton  and 
manufactures,  declined  both  in  value  and  amount.  So  rapid, 
however,  was  the  advance  in  cotton  production  that  in  spite 
of  falling  prices  the  exports  of  this  staple  increased  slightly 


II 

II 


r 


'i! 

J 

i    J 


AGRICULTURAL  COMMERCE 


I 


370 

in  value  and  from  87-  to  298,000,000  pounds  in  actual  vol- 
ume. ,    .  . 

■Hie  Period  1830-1836.— Then  followed  six  years  of  gen- 
eral trade  improvement.  The  opening  of  the  Middle  West 
increased  the  surplus  in  flour,  grain  and  provisions,  which 
improved  transportation  facilities  made  more  readily  avail- 
able, and  the  growth  of  cotton  in  the  South  continued  to  pro- 
gress. The  agricultural  exports  rose  to  a  value  of  over  $90,- 
000,000  annually  and  comprised  over  80  per  cent,  of  all  do- 
mestic exports. 

The  Period  1836-1845.— This  buoyancy,  however,  was 
short-lived,  for  a  business  panic  developed  in  1837  land  the 
exports  during  the  following  decade  fluctuated  irregularly. 
None  of  the  important  agricultural  exports  increased  with  the 
one  exception  of  cotton  which  was  produced  in  such  large 
quantities  that  its  foreign  shipments  advanced  from  424,000,- 
000  pounds  in  1837  to  547,000,000  in  1846,  although  falling 
prices  depressed  their  annual  value  by  over  $28,500,000. 

The  Period  1846-1860.— The  period  1846  to  1860  is  known 
as  the  "golden  era"  of  American  commerce  for  the  nation  ex- 
perienced unprecedented  prosperity  and  the  foreign  trade  rose 
to  a  hitherto  unknown  level.    Stimulated  by  the  rapid  settle- 
ment of  the  Mississippi  Valley,  by  railroad  construction, 
greatly  increased  farm  production,  the  abandonment  of  the 
British  corn  laws,  the  severe  food  famine  in  Ireland,  the 
crowing  demand  for  outside  foodstuffs  in  continental  Euro- 
pean markets,  national  prosperity,  and  by  the  California  gold 
discoveries  with  consequent  favorable  monetary  conditions,  the 
entire  export  trade  and  particularly  the  portion  dependmg 
upon  agriculture  became  unusually  buoyant.     Cotton  exports 
increased  from  1,667,000  bales  in  1846  to  3,774,000  in  1860 
and  from  a  value  of  $42,767,000  to  $191,806,000.     Western 
jrrain  which  had  gradually  entered  the  foreign  trade  during 
earlier  years  now  for  the  first  time  became  an  item  of  real 
importance  and  caused  a  rapid  rise  in  food  exports.     The 
maximum  point  in  food  shipments  wa^  reached  in  1857  when 
14,500,000  bushels  of  wheat,  10,250,000  bushels  of  corn  and 
3  712.000  barrels  of  flour,  and  breadstuffs  of  all  kinds  valued 


\ 
I 


FOREIGN  MARKETS  AND  INFLUENCES        371 


at  $55,500,000  were  shipped  abroad.  Provisions,  particularly 
western  meat  products,  were  exported  to  the  value  of  $16,- 
600,000  in  the  closing  year  of  the  golden  era,  as  also  were 
nearly  168,500,000  pounds  of  leaf  tobacco.  The  value  of  all 
agricultural  exports  combined  rose  from  $108,600,000  in  1850 
to  $260,280,000  in  1860,  and  even  though  non-agricultural  in- 
dustries of  many  kinds  were  being  established,  continued  to 
comprise  over  80  per  cent,  of  the  country's  entire  export 
trade.^ 

No  sooner  had  the  free  trade  policy  been  adopted  in  Great 
Britain  during  the  year  1846  to  1849  than  England  became 
the  great  foreign  market  for  American  farm  products,  for 
England  led  in  the  cotton  textile  industry  and  then  as  in 
later  years  was  more  dependent  upon  outside  foodstuffs  than 
any  other  large  country.  But  wider  markets  were  also  found 
in  Ireland,  Scotland,  Germany,  Holland,  Norway,  Sweden, 
Spain  and  Italy.  Gold  discoveries  created  an  Australian  mar- 
ket for  foodstuffs,  and  food  markets  were  also  found  in  South 
America,  Canada,  Cuba,  the  British  West  Indies  and  Africa. 

The  Civil  War  Era.— The  Civil  War  resulted  in  the  al- 
most complete  destruction  of  the  cotton-export  trade  and  con- 
sequently reduced  the  agricultural  exports  during  the  period 
1861-1865.  It  is  remarkable,  however,  that  western  flour, 
grain  and  provisions  were  exported  in  larger  quantities  than 
during  the  golden  era.  Though  thousands  of  farmers  had 
flocked  to  the  colors  the  crops  of  the  northern  states  under- 
went an  amazing  increase.  Machinery,  women  and  border 
state  immigrants  replaced  the  absent  farmers;  vessels  flying 
foreign  flags  largely  replaced  the  sorely  pressed  American 
merchant  fleet ;  and  European  crop  failures  caused  an  unusual 
foreign  demand.  England  was  forced  to  recognize  that 
American  foodstuffs  as  well  as  cotton  had  become  an  impor- 
tant international  consideration.  Leaf  tobacco  exports  did  not 

^ See  U.  S.  Bureau  of  Statistics:  Exports  of  Manufactures — 
1790-1902,  Monthly  Summary  of  Commerce  and  Finance,  Apr.,  1903, 
p.  3249;  and  U.  S.  Bureau  of  Foreign  and  Domestic  Commerce,  Sta- 
tistical Abstract  (1913),  p.  638.  Statistics  disagree  slightly  in  differ- 
ent sources. 


I* 

fl 


372  AGRICTTLTUBAL  COMMEBCE 

increase  but  were  well  maintained,  and  the  aggregate  value 
of  all  agricultural  exports,  other  than  '=0"°"' «;d^«'°'=^J/'7 
less  than  $68,500,000  in  1860  to  $130,800,000  m  1863^  A 
portion  of  this  increase  represented  a  rise  in  prices,  but  the 
Lports  of  flour,  grain  and  provisions  advanced  in  volume 

as  well  as  in  value.  ,    , 

The  Period  1865-1900.— Though  farm  commodities  had 
long  been  the  mainstay  of  the  country's  export  trade,  the  hey- 
day of  agricultural  exports  was  reached  during  the  seventies 
and  eighties.  Their  upward  course  was  subject  to J-^^^^^^^ 
but  their  total  value  gradually  advanced  from  $278,670,000 
in  1866  to  $844,617,000  in  1900. 

The  growth  in  exports  was  the  direct  result  of  the  west- 
ward  expansion  of  agriculture  and  the  vast  increase  m  the 
production  of  the  grains,  livestock,  cotton,  and  leaf  tobacco^ 
A  great  surplus  was  created  which  sought  and  found  foreign 
markets,  its  exportation  being  stimulated  by  improvemens 
Trail,  lake  and  ocean  transportation  facilities,  m  the  method 
of  international  settlement  and  the  establishment  of  accep  ed 
export  trade  methods,  by  the  growth  and  westward  migra  ion 
of  flour  mills  and  meat-packing  plants,  by  reduced  freight 
rates  and  by  a  brisk  demand  in  Great  Britain   western  Eu- 
rope and  to  some  extent  in  non-European  markets. 

'The  principal  feature  of  the  period  1865  to  1^00  -as  ^h^ 
unprecedented  increase  in  the  shipment  of  breadstuffs  whi  h 
superseded  cotton  as  the  largest  group  of  American  exports. 
By  1880  wheat  exports  had  increased  to  180,000  000  and  corn 
exports  to  99,500,000  bushels  and  the  total  value  of  all  ex- 
ported breadstuffs  to  $288,000,000  or  $76,500,000  in  excess 
of  the  value  of  cotton  exports.     In  the  closing  year  of  the 
century  186,097,000  bushels  of  wheat,  213,123,000  bushels  of 
corn,  and  breadstuffs  of  all  kinds  valued  at  $262,744,000  were 
shipped  abroad.     The  greatly  enhanced  importance  of  wheat 
and  flour  exports  is  emphasized  in  the  large  Proportion  of  the 
total  crop  which  was  shipped  abroad.     In  1860  but  9.2  per 
cent,  of  the  wheat  crop  was  exported,  but  in  1870  the  export 
ratio  rose  to  20.7  per  cent.,  in  1880  to  40.2  per  cent.,  and 
from  then  until  the  end  of  the  century  it  fluctuated  from  25 


FOREIGN  MARKETS  AND  INFLUENCES        373 

to  41J  per  cent.,  closing  with  34  per  cent,  in  1900.  The  per 
cent,  of  the  corn  crop  exported  to  foreign  markets  has  always 
been  smaller,  but  it,  too,  rose  from  ^  of  1  per  cent,  in  1860  to 
6f  per  cent,  in  1880  and  to  10-i%  per  cent,  in  1900,  the 
usual  proportion  since  the  early  seventies  varying  from  2  to  5 
per  cent,  of  the  crop. 

Cotton  exports  were  close  rivals  of  breadstuffs.  They 
lagged  for  a  time  after  the  close  of  the  war,  but  by  1880  they 
had  increased  to  4,453,000  bales  and  by  1900  to  6,807,000 
valued  at  $241,833,000.  A  relatively  smaller  proportion  of 
the  crop  was  exported  than  during  1846  to  1860,  when  from 
71  to  86.8  per  cent,  was  annually  shipped  abroad,  because 
domestic  mills  were  gradually  entering  the  cotton  trade;  but 
as  late  as  1900,  66.8  per  cent,  of  the  crop  was  still  being 
marketed  in  foreign  countries. 

The  exports  of  meat  and  meat  products  which  had  also 
made  a  beginning  before  the  Civil  War,  advanced  rapidly 
from  a  value  of  $35,000,000  in  1865  to  $113,769,000  in  1880 
and  to  $175,227,000  in  1900,  and  soon  came  to  rank  as  the 
third  group  of  American  exports.  In  the  closing  year  of  the 
century  the  total  exports  of  all  provisions  including  dairy 
products,  were  valued  at  nearly  $184,500,000  and  in  addition 
the  livestock  industry  exported  live  animals,  principally  cattle 
valued  at  $43,585,000.  Leaf  tobacco  exports  had,  moreover, 
increased  to  315,750,000  pounds  valued  at  $27,600,000  and 
comprising  nearly  39  per  cent,  of  the  entire  tobacco  crop. 

Agricultural  commodities  were  the  mainstay  of  the  coun- 
try's export  trade  throughout  the  nineteenth  century.  It  is 
remarkable  that  until  the  later  eighties,  though  many  other 
industries  were  entering  the  export  trade,  from  75  to  84  per 
cent,  of  the  aggregate  continued  to  spring  from  the  farming 
industries.  The  agricultural  proportion  was  somewhat  lower 
during  the  remainder  of  the  century,  but  remained  above  70 
per  cent,  until  1895  and  exceeded  61  per  cent,  in  1900. 


i 


374  AGKICULTUKAL  COMMERCE 

Eecent  Developments  of  Agricultural  Exports 

The  total  value  of  the  farm  products  exported  from  the 
TJnited  States  since  the  close  of  the  nineteenth  century  has 
undergone  a  further  advance  from  $844,617,000  in  1900  to 
$1,123,000,000  in  1913,  or  nearly  33  per  cent.  Since  agricul- 
tural export  prices  during  this  period  have  advanced  fully 
30  per  cent.,  it  becomes  evident  that  the  real  increase  in  vol- 
ume has  been  but  slight.  Agricultural  exports  have  indeed 
undergone  recent  developments  which  are  in  marked  contrast 
with  those  of  previous  years : 

1.  Their  dominant  position  in  the  country's  export  trade 
has  been  seriously  undermined.  Prior  to  the  outbreak  in  1914 
of  the  European  War,  which  caused  an  unusual  temporary  ex- 
portation of  foodstuffs,  there  was  a  steady  decline  in  the  rela- 
tion between  the  agricultural  and  total  export  trade  from  65.2 
per  cent,  in  1901  to  46.2  per  cent,  in  1913.^  This  is  in  sharp 
contrast  with  the  relative  growth  of  the  exports  of  manu- 
factures and  semi-manufactures  during  the  same  period  from 
31.9  to  48.8  per  cent.  The  relative  shift  from  manufactures 
to  farm  products  was  due  in  part  to  the  rise  of  a  surplus  out- 
put in  various  industries  such  as  the  iron  and  steel,  agri- 
cultural implement,  mineral  oil,  copper,  lumber,  cotton 
textile,  leather,  vehicle,  chemical  and  rubber  goods  indus- 
tries, and  in  part  to  the  relative  decline  in  the  country's  food- 
stuffs. 

2.  The  most  pronounced  development  was  the  absolute 
decline  in  the  value  of  food  exports,  in  spite  of  rising  prices, 
from  nearly  $545,603,000  in  1900  to  $369,087,000  in  1910 
and  $430,296,000  in  1914;  and  their  relative  decline  from 
39.8  per  cent,  of  the  total  export  trade  in  1900  to  18.6  per 
cent,  in  19 14.^  Wheat  exports  including  flour,  fell  from  a 
maximum  of  over  234,773,000  bushels  in  1902  to  145,500,000 
in  1914  and  to  a  much  lower  point  during  various  years  of 

*U.  S.  Statistical  Abstract   (1913),  p.  638. 

'  Department  of  Commerce  includes  in  these  totals  cottonseed 
oil,  oilcake,  wines,  spirits  and  liquors,  fish,  etc.,  as  well  as  the  great 
agricultural  crops. 


FOEEIGN  MAKKETS  AND  INFLUENCES        375 

this  period.  Corn  exports  including  cornmeal  likewise  de- 
clined from  a  maximum  of  213,123,000  bushels  in  1900  to 
10,700,000  in  1914.  The  value  of  total  breadstuffs  exported 
during  the  first  decade  of  the  twentieth  century  fell  from 
$262,750,000  to  $133,593,000  and  to  fourth  rank  as  an  Amer- 
ican export.^  The  exports  of  provisions,  including  meat  prod- 
ucts and  dairy  products,  continued  at  a  higher  level  but  also 
declined  from  a  value  of  $184,500,000  in  1900  to  $130,633,000 
in  1910  and  $146,250,000  in  1914.  The  number  of  cattle 
exported  fell  abruptly  from  over  397,000  in  1900  to  18,376 
in  1914. 

Not  only  did  the  food  exports  decline  relative  to  the  total 
export  trade  of  the  United  States,  but  they  declined  relative 
to  the  production  of  foodstuffs.  Wheat  exports,  for  example, 
fell  from  34  per  cent,  of  the  total  crop  in  1900  to  19J  per 
cent,  in  1913,  and  during  the  same  period  corn  exports  de- 
clined from  lOy^^  per  cent,  to  1  -|  per  cent,  of  the  corn 
crop.^ 

3.  Contrary  to  the  decline  in  food  shipments  the  great 
agricultural  exports  other  than  foodstuffs  continued  to  in- 
crease. These  exports,  of  which  cotton  and  leaf  tobacco  are 
most  important,  constitute  raw  materials  for  use  in  foreign 
industries  and  have  thus  far  been  promoted  by  the  continued 
existence  of  a  great  surplus.  Eaw  cotton  regained  its  posi- 
tion as  the  king  of  exports.  The  volume  of  cotton  exports 
sprang  from  6,807,000  bales  in  1900  to  10,675,000  in  1912 
and  9,165,000  in  1914,  and  their  value  from  $241,833,000  in 
1900  to  nearly  $610,475,000  in  1914.  Even  though  the  Amer- 
ican cotton  textile  industry  grew  rapidly  the  proportion  of  the 
total  cotton  crop  shipped  abroad  continued  to  fluctuate  from 
63  to  72  per  cent. 

Leaf  tobacco  exports  similarly  advanced  from  315,750,000 
pounds  in  1900  to  449,750,000  in  1914,  and  from  a  value  of 
$29,400,000  to  nearly  $54,000,000.  In  late  years  an  equiva- 
lent of  over  40  per  cent,  of  the  total  leaf  tobacco  crop  was 
shipped  to  foreign  markets. 

'  Their  total  value  in  1914  was  $165,300,000. 
'  Including  flour  and  meal. 


376  AGRICULTURAL  COMMERCE 


Foreign  Markets  for  Agricultural  Exports 

European  Markets. — The  foreign  markets  for  American 
farm  products  have  long  been  confined  primarily  to  Europe. 
The  fall  in  the  relative  position  of  Europe  in  the  total  export 
trade  of  the  United  States  from  74.6  per  cent,  in  1900  to 
59.9  per  cent,  in  1913  and  62.8  per  cent,  in  1914  was  due 
chiefly  to  the  shift  from  agricultural  products  to  manufac- 
tures, less  than  45  per  cent,  of  the  latter  finding  a  market 
in  the  Old  World  even  including  the  agricultural  countries 
of  eastern  Europe.  The  position  of  Europe  as  the  dominant 
foreign  market  for  American  farm  products  has  declined 
somewhat  in  recent  years,  but  it  has  since  1900  continued  to 
absorb  from  65  to  90  per  cent,  of  the  annual  shipment  of 
American  raw  foodstuffs,  from  72  to  83  per  cent,  of  the  pre- 
pared food  exports,  and  usually  about  92  or  93  per  cent,  and 
80  or  85  per  cent,  respectively  of  the  exports  of  raw  cotton 
and  leaf  tobacco. 

A  sharp  contrast  may  be  drawn  between  the  countries  of 
eastern  and  western  Europe.  The  former  produce  a  surplus 
of  foodstuffs  and  their  cotton  textile  industry  although  pro- 
gressing has  thus  far  been  of  secondary  importance,  while  the 
latter  do  not  produce  sufficient  food  to  maintain  their  popula- 
tion, and  have  developed  a  huge  textile  industry  which  de- 
pends upon  imported  cotton. 

Great  Britain  has  long  been  the  leading  foreign  market 
for  American  foodstuffs,  for  as  the  United  States  Department 
of  Agriculture  reports,  the  United  Kingdom  produces  but  27 
per  cent,  of  her  edible  grains,  53  per  cent,  of  her  meats,  62 
per  cent,  of  her  dairy  products  and  but  53  per  cent,  of  her 
aggregate  food  requirements.^  Great  Britain,  moreover,  has 
adhered  to  the  free  trade  policy  and  has  few  inspection  regu- 
lations which  restrict  food  importation. 

Germany  is  also  a  great  market  for  American  food  exports 
but  is  more  restricted,  for  even  though  Germany  is  also  an 

*  Bureau  of  Crop  Estimates:  The  Agricultural  Outlook,  Nov.  23, 
1914,  pp.  20-22. 


FOREIGN  MARKETS  AND  INFLUENCES        377 

industrial  country  and  has  a  larger  population  than  Great 
Britain  the  German  Government  has  persistently  encouraged 
the  production  of  domestic  foodstuffs  wherever  possible.  Ger- 
many consequently  produces  about  82  per  cent,  of  her  edible 
grains,  93  per  cent,  of  her  meats,  92  per  cent,  of  her  dairy 
products  and  88  per  cent,  of  her  aggregate  food  requirements. 
Not  only  does  Germany  produce  large  quantities  of  grain, 
flour  and  provisions  which  in  the  absence  of  intensive  farming 
would  be  imported  from  the  United  States  and  other  surplus 
countries,  but  also  a  huge  potato  crop  which  further  restricts 
the  need  for  food  imports.^  Germany,  moreover,  levies  pro- 
tective tariff  duties  on  most  food  imports  and  enforces  in- 
spection regulations  which  have  restricted  the  importation  of 
cattle  and  fresh  meats.  Wheat,  flour,  cured  pork  and  beef 
products,  lard,  oleo  and  other  American  packing-house  prod- 
ucts, however,  were  regularly  shipped  to  Germany  before  the 
outbreak  of  the  European  War. 

France,  Italy,  the  Netherlands,  Belgium  and  all  the  re- 
maining countries  of  western  Europe  are  also  markets  for 
American  foodstuffs,  for  their  domestic  output  of  food  is  in- 
sufficient. The  French  market,  however,  is  even  more  re- 
stricted than  the  German  because  France  produces  about  93 
per  cent,  of  the  edible  grains  needed  by  her  population,  98  per 
cent,  of  her  meats,  more  dairy  products  than  are  needed,  and 
93  per  cent,  of  her  total  food  requirements.  Holland  and 
Belgium  import  relative  large  quantities  both  because  their 
lack  of  sufficient  domestic  foods  is  greater  than  in  either 
France  or  Germany  and  because  a  portion  of  the  food  ship- 
ments to  Antwerp,  Rotterdam  and  Amsterdam  are  reshipped 
to  central  European  countries. 

The  market  for  American  foods  in  Eastern  Europe  is  small 
because  most  of  the  countries  in  that  section  of  Europe — par- 
ticularly Russia,  Roumania  and  Bulgaria — produce  a  surplus 
which  they  export  to  Western  Europe.  This  is  also  true  of 
Austria-Hungary,  the  eastern  half  of  the  dual  empire  pro- 
ducing a  surplus  of  farm  products. 

*U.  S.  Bureau  of  Foreign  and  Domestic  Commerce:    Utilization 
of  Potatoes  in  Europe  (1914). 


378 


AGRICULTUKAL  COMMERCE 


I 


Great  Britain  is  also  the  principal  foreign  market  for 
American  raw  cotton  and  leaf  tobacco  exports,  taking  nearly 
38  per  cent,  of  each  in  1914.  Other  important  European  mar- 
kets for  American  cotton  are  Germany,  France,  Italy,  Spain 
and  Belgium,  which  together  import  more  cotton  from  the 
United  States  than  Great  Britain.  This  is  also  true  in  the 
case  of  leaf  tobacco,  Italy,  France,  Germany,  Holland,  Bel- 
gium and  Spain  being  tobacco  markets  of  long-standing  im- 
portance. 

Non-European  Markets.  — Though  the  agricultural  ex- 
ports are  dependent  chiefly  upon  Europe,  numerous  non-Euro- 
pean markets  are  of  appreciable  importance.  Since  the  close 
of  the  nineteenth  century  from  10  to  35  per  cent,  of  the  food 
exports  in  crude  condition,  and  from  17  to  28  per  cent,  of  the 
prepared  food  exports  were  shipped  to  non-European  markets. 
Grains  and  flour  are  shipped  chiefly  to  Canada,  the  Central 
American  republics,  Panama,  Mexico,  Cuba  and  other  West 
Indian  markets,  Brazil,  Chili,  Peru,  the  northern  countries 
of  South  America,  Newfoundland  and  Labrador,  Japan,  the 
Philippines  and  South  Africa.  Limited  quantities  of  raw 
cotton  are  similarly  exported  to  Japan,  Canada  and  Mexico; 
and  leaf  tobacco  to  Australasia,  China,  Canada,  South  Amer- 
ica and  Africa.  With  the  exception  of  industrial  Japan,  the 
importance  of  these  countries  in  the  American  export  trade, 
however,  is  principally  as  markets  for  non-agricultural 
products. 

Agricultural  Export  Trade  Influences 

Favorable  Influences. — The  forces  which  influence  the  ex- 
portation of  American  farm  products  are  both  favorable  and 
unfavorable.  Those  which  tend  to  maintain  the  agricultural 
exports  so  far  as  possible  are  principally  the  following: 

1.  The  normal  shortage  of  food  production  in  Great  Brit- 
ain and  western  Europe  obliges  those  countries  to  import 
varying  proportions  of  their  grain,  flour,  meat  products  and 
in  some  instances  dairy  products.  Their  population  is  dense, 
their  industries  are  mainly  non-agricultural,  and  their  out- 


FOREIGN  MARKETS  AND  INFLUENCES        379 

side  sources  other  than  the  United  States — although  increas- 
ing in  importance — have  thus  far  been  insufficient.  The 
needs  of  the  non-European  countries  mentioned  above  (page 
378)  are  less  pressing  but  they  too  may  be  expected  to  continue 
the  importation  of  American  foodstuffs  in  limited  quantities. 

2.  The  cotton  mills  of  Great  Britain,  Continental 
Europe,  and  to  a  less  extent  those  of  Japan  and  Canada,  guar- 
antee a  large  foreign  market  for  American  cotton,  for  the 
United  States  produces  over  60  per  cent,  of  the  world's  com- 
mercial cotton  crop  and  a  much  larger  proportion  of  the 
varieties  best  suited  to  the  manufacture  of  the  finer  grades  of 
yarn  and  cloth. 

3.  The  foreign  demand  for  American  leaf  tobacco,  espe- 
cially in  Great  Britain,  Italy,  France,  Germany,  Holland, 
Belgium,  Spain,  Canada  and  Australasia,  stimulates  the  ex- 
portation of  the  huge  surplus  of  heavy  shipping  leaf  which 
the  domestic  market  is  unable  to  absorb. 

4.  The  United  States  still  produces  a  surplus  of  cotton, 
leaf  tobacco,  wheat,  corn,  flour  and  provisions  which  regu- 
larly seeks  foreign  markets.  The  surplus  of  grain,  flour  and 
meats  has  fallen  rapidly  since  the  close  of  the  nineteenth  cen- 
tury, but  so  long  as  it  cannot  be  sold  in  the  domestic  market 
without  depressing  the  price  a  portion  of  the  crops  will  be 
sold  abroad. 

5.  The  exportation  of  farm  products  to  European  mar- 
kets is  favored  by  the  well-organized  condition  of  the  trade 
mechanism  necessary  for  international  selling,  shipping  and 
financing.  Great  Britain  and  western  Europe  as  well  as  the 
United  States  have  organized  exchanges,  recognized  markets, 
banks,  export  and  import  concerns,  and  improved  railroad, 
steamship,  warehouse,  elevator  and  port  facilities. 

6.  Food  and  animal  exports  are  occasionally  stimulated 
by  the  abnormal  needs  of  belligerent  countries  in  times  of 
war.  The  increased  prices  and  unusual  demand  caused  by 
the  present  European  War  for  foodstuffs,  horses  and  mules 
immediately  increased  the  shipments  to  Great  Britain  and 
France  and  even  to  neutral  countries  such  as  Italy,^  Holland 

*  Later  became  a  belligerent. 


380 


AGRICULTURAL  COMMERCE 


I' 


and  the  Scandinavian  countries,  some  of  whose  outside  sources 
of  supply  were  restricted  by  foreign  embargoes  and  the  clos- 
ing of  trade  routes  and  some  of  whom  were  mobilizing  their 
military  forces  and  probably  transshipping  cargoes  to  bellig- 
erents. Direct  food  exports  to  Germany  were  on  the  contrary 
immediately  restricted  as  a  result  of  the  interference  with 
vessel  movements  by  enemy  warships,  and  the  direct  ship- 
ments of  foodstuffs  as  well  as  of  cotton  and  other  agricultural 
exports  to  Germany  ceased  as  a  result  of  the  issue  and  en- 
forcement of  the  British  orders  in  council  of  February  2,  and 

March  1,  1915. 

Unfavorable  Influences. — The  agricultural  export  trade 
has  also  in  recent  years  been  confronted  by  serious  obstacles. 
(1)  The  greatly  increased  home  needs  for  grain,  flour,  live- 
stock and  meat  products  coupled  with  a  relatively  slow  in- 
crease, and  in  some  instances  a  decline  in  food  production,  has 
been  chiefly  responsible  for  the  decrease  in  food  exports.  Cot- 
ton and  leaf  tobacco  exports  have  thus  far  maintained  an  im- 
portant relation  to  their  respective  crops,  yet  should  the  textile 
and  tobacco  manufacturing  industries  of  the  United  States 
continue  to  expand  as  they  have  during  the  past  two  decades, 
it  is  probable  that  a  larger  proportion  of  these  crops  may  in 
the  not  distant  future  be  retained  for  home  consumption. 

(2)  An  increasing  number  of  additional  outside  sources, 
from  which  Great  Britain  and  Western  Europe  import  food- 
stuffs, have  arisen  in  recent  years.  Russia,  Roumania,  Bul- 
garia and  Hungary,  Argentina,  Australia,  India  and  Canada 
have  become  important  grain  and  flour  exporters,  and  Argen- 
tina, Brazil,  Uruguay,  New  Zealand,  Australia,  Russia  and 
India  are  exporters  of  livestock  and  meat  products.  The 
cotton  and  leaf  tobacco  export  trades  of  the  United  States 
have  been  less  affected  by  the  rise  of  other  outside  sources, 
but  growing  quantities  of  cotton  are  being  exported  from 
British  India,  Egypt  and  other  tropical  colonies  of  the  Euro- 
pean powers ;  and  of  leaf  tobacco  from  the  Dutch  East  Indies, 
Turkey,  the  West  Indies,  the  Philippines,  British  India,  Bra- 
zil, Paraguay,  Russia,  Austria-Hungary  and  Algeria. 

(3)     The  policy  of  intensive  agriculture  with  the  resul- 


FOREIGN  MARKETS  AND  INFLUENCES        381 

tant  heavy  domestic  production  of  livestock,  grain,  flour,  dairy 
products  and  vegetables  in  Germany,  France,  Austria-Hun- 
gary and  some  of  the  smaller  countries  of  central  and  western 
Europe  tends  to  restrict  the  exports  of  American  foodstuffs 
by  reducing  the  food  imports  of  these  countries  to  a  minimum. 
(4)  The  high  tariff  duties  levied  on  imported  wheat, 
flour,  livestock  and  numerous  meat  products  in  all  the  food- 
importing  countries  of  western  Europe  except  Great  Britain, 
Denmark,  Holland  and  Belgium  tend  to  restrict  somewhat 
the  exportation  of  these  products  from  the  United  States,  and 
in  some  markets  the  import  duties  are  supplemented  by  re- 
strictive inspection  regulations. 

During  the  European  War  the  shortage  of  vessel  tonnage, 
high  ocean  freight  rates,  and  the  closing  of  trade  routes  to 
some  of  the  continental  markets  prevented  the  free  movement 
of  the  agricultural  as  well  as  other  exports  of  the  United 
States,  but  this  situation  was  wholly  abnormal.  In  times  of 
peace,  ocean  freights  and  services  to  the  great  European  mar- 
kets are  usually  satisfactory.  The  importance  of  ocean  trans- 
portation as  an  obstacle  to  the  free  development  of  the  Ameri- 
can export  trade  is  normally  confined  to  the  trade  with  non- 
European  countries  and  applies  more  largely  to  the  shipment 
of  manufactures  than  to  the  agricultural  exports. 


The  Agricultural  Imports 

The  early  trade  in  West  India  sugar  and  molasses,  south 
European  wines  and  spirits,  and  tea,  coffee  and  spices  im- 
ported from  China,  India,  the  East  and  West  Indies  and 
South  America  constitutes  an  interesting  and  important  chap- 
ter in  the  history  of  American  commerce  and  extends  back  to 
the  early  colonial  days.^  For  many  years,  however,  the  agri- 
cultural imports  as  a  whole  were  greatly  exceeded  by  the  im- 
ports  of  manufactures.     The  country  was  agricultural  and 

*For  details  of  early  trade  history  see  Emory  E.  Johnson: 
**  History  of  the  Domestic  and  Foreign  Commerce  of  the  United 
States,''  vol.  ii 


^ 


382 


AGRICULTUKAL  COMMERCE 


needed  to  import  the  bulk  of  its  manufactures  from  abroad. 
As  late  as  the  period  1846  to  1860,  long  after  manufactur- 
ing industries  had  begun  to  develop  in  the  United  States,  the 
agricultural  imports  comprised  but  28  to  39  per  cent,  of  the 
entire  import  trade  as  compared  with  imports  of  manufac- 
tures ranging  from  5  6^  to  71  per  cent,  of  the  total. 

The  export  and  import  trades  in  agricultural  commodities 
after  the  Civil  War  were  similar  in  that  both  increased  rap- 
idly. They  differed,  however,  in  that  since  the  close  of  the 
nineteenth  century  the  former  has  declined  relative  to  ex- 
ported manufactures  and  the  total  export  trade,  while  the 
imports  of  agricultural  products  have  steadily  maintained  the 
relative  level  which  they  attained  during  the  seventies  and 
eighties.  The  total  value  of  all  agricultural  imports  advanced 
from  $129,816,000  in  1860  to  $191,559,000  in  1870,  $314,- 
617,000  in  1880,  $420,139,000  in  1900  and  to  over  $815,- 
000,000  in  1913.  In  1860  they  comprised  36.7  per  cent,  of 
the  value  of  the  country's  entire  import  trade,  in  1870  43.9 
per  cent.,  in  1880  47.1  per  cent.,  in  1900  49.4  per  cent,  and 
since  then  have  varied  from  43.7  to  49.6  per  cent,  of  the  total.^ 
Meanwhile  the  imports  of  manufactures  and  semi-manufac- 
tures also  advanced  to  a  value  of  $757,500,000  in  1913  but 
declined  relatively  to  less  than  42  per  cent,  of  the  entire  im- 
port trade. 

The  agricultural  imports  include  three  principal  groups 
of  commodities.  (1)  The  largest  and  most  rapidly  increas- 
ing group  consists  of  raw  material  of  agricultural  origin  to 
be  used'  in  the  manufacturing  industries  of  the  United  States. 
In  the  fiscal  year,  1914,  hides  and  skins  valued  at  $120,- 
290,000  were  imported  from  Argentina,  Russia,  Canada,  Mex- 
ico, Australasia,  the  East  Indies,  and  from  a  wide  range  of 
other  countries  including  even  Great  Britain  and  western 
Europe.  Over  237,600,000  pounds  of  wool  valued  at  $53,- 
191,000  dollars  were  imported  in  the  same  year,  principally 
from  England,  acting  as  a  broker  nation  for  wools  raised  in 
many  other  parts  of  the  world,  and  from  Argentina  and 
Uruguay,  Australasia,  China  and  Russia.     Raw  silk  valued 

^U.  S.  Statistical  Abstract  (1913),  p.  638. 


FOREIGN  MARKETS  AND  INFLUENCES        383 

at  $97,828,000  was  imported  from  Japan,  China,  Italy,  and 
France;  hemp,  flax,  jute,  sisal  grass  and  other  raw  fibers 
valued  at  $54,350,000  chiefly  from  Mexico,  the  East  Indies, 
the  Philippines,  and  England  again  acting  as  a  broker  nation ; 
leaf  tobacco  valued  at  $35,029,000  chiefly  from  Cuba,  Turkey 
and  Holland;  and  long-staple  cotton,  principally  Egyptian, 
valued  at  $19,457,000. 

The  second  group  consists  of  crude  foodstuffs  and  food 
animals,  the  value  of  which  has  since  1900  varied  from  9  ^^^ 
to  13  3^  per  cent,  of  the  total  import  trade.  It  includes  coffee, 
which  is  imported  largely  from  Brazil,  Colombia,  Venezuela, 
Central  America,  Mexico,  the  East  and  West  Indies  and  in- 
directly from  various  European  countries;  tea  from  Japan, 
China,  the  East  Indies,  and  indirectly  from  England;  and 
crude  cocoa  from  the  West  Indies,  Brazil,  Ecuador,  and  from 
England,  Portugal  and  other  European  transshipment  coun- 
tries. It  also  includes  a  large  and  increasing  volume  of  fruits 
and  nuts  which  are  imported  from  the  West  Indies,  Central 
and  South  America,  Mexico,  Italy,  France,  Spain  and  a  wide 
range  of  additional  tropical  and  subtropical  countries.^  The 
annual  value  of  all  foodstuffs  imported  in  the  raw  condition, 
including  a  limited  number  of  food  animals,  has  since  the 
year  1900  varied  from  $98-  to  $247,800,000. 

A  third  group  of  agricultural  imports  includes  the  various 
manufactured  or  partially  prepared  foods.  Sugar,  which  is 
the  largest  individual  import  of  the  entire  foreign  trade,  is 
imported  to  the  value  of  $100,000,000  annually  from  Cuba, 
the  Philippines,  the  Dutch  East  Indies,  Santo  Domingo  and 
South  America.  The  Department  of  Commerce  also  includes 
in  this  group  spirits,  wines  and  other  beverages  to  the  value 
of  over  $20,000,000,  which  are  imported  from  France,  Ger- 
many, Italy,  Spain,  Great  Britain  and  other  countries.  It 
includes  dried  and  preserved  fruits,  and  in  very  recent 
years,  limited  quantities  of  meat  products,  dairy  products 
and  breadstuffs  such  as  rice  and  wheat  flour,  macaroni  and 
tapioca.  The  total  annual  value  of  all  imports  in  this  group 
has  since  the  year  1900  ranged  from  $95,300,000  to  $227,- 

See  chap,  xii,  p.  243. 


1 


f   '' 


384 


AGKICULTUEAL  COMMERCE 


if 


iii 


J250,000  and  from  lOJ  to  15 1  per  cent,  of  the  entire  import 
trade.  The  relative  position  of  food  imports — crude  as  well 
as  prepared— has  in  recent  years  been  lower  than  during  the 
seventies  and  eighties,  while  that  of  raw  materials  of  agricul- 
tural origin  has  steadily  risen. 

Effect  of  Agricultural  Imports  on  Americaii  Fanners. 
—Though  the  volume  of  the  imports  of  agricultural  com- 
modities is  astoundingly  large  their  effect  upon  many  of  the 
principal  farm  crops  and  allied  industries  of  the  United  States 
— grain,  flour,  cotton,  livestock,  meat  products,  leaf  tobacco, 
dairy  products,  fruits  and  vegetables— has  for  various  reasons 
never  been  serious.     (1)  Most  of  the  imported  commodities  of 
this  kind  are  not  directly  competitive  and  their  total  volume 
has  thus  far  been  relatively  small.     The  imports  of  foreign 
grain,  grain  products,  meats  and  livestock  for  food  purposes, 
have  always  been  small  and  were  indeed  until  very  recent 
years  almost  unappreciable.    Certain  dairy  products,  mainly 
of  a  specialized  character,  have  been  imported  for  some  years, 
but  their  effect  upon  the  vast  output  of  the  domestic  dairy  in- 
dustries has  been  restricted  by  their  relatively  small  volume. 
Foreign  cotton  and  leaf  tobacco  imports  have  been  rapidly  in- 
creasing but  are  largely  non-competitive,  the  long-staple  cot- 
ton imported  from  Egypt  being  in  competition  with  but  a 
small  fraction  of  the  American  cotton  crop,  which  consists 
mainly  of  short-staple  varieties;  and  the  imports  of  Cuban, 
Turkish  and  other  special  varieties  of  leaf  tobacco  come  into 
competition  with  but  a  small  part  of  the  country's  vast  crop 
of  domestic  leaf.     Much  of  the  foreign  cotton  and  leaf  to- 
bacco is  mixed  with  the  domestic  product  to  obtain  desired 
finished  wares  and  thereby  increases  rather  than  restricts  the 
demand  for  American  upland  cotton  and  leaf  tobacco.  A  wide 
range  of  fruits  and  nuts  is  imported,  but  as  was  described  in 
an  earlier  chapter  a  large  proportion  consists  of  tropical  and 
subtropical  varieties  which  are  not  produced  on  a  large  scale 
in  the  United  States. 

(2)  The  effects  of  the  agricultural  imports  of  this  kind 
have  been  in  some  instances  further  minimized  by  the  import 
duties  which  were  imposed  until  the  enactment  of  the  tariff 


FOREIGN  MARKETS  AND  INFLUENCES        385 

law  of  October,  1913,  and  which  are  still  applicable  to  leaf 
tobacco,  prepared  dairy  products  and  certain  fruits. 

(3)  Some  of  the  principal  imported  agricultural  com- 
modities are  even  less  competitive  owing  to  the  almost  com- 
plete lack  of  production  in  the  United  States.  Such  for  ex- 
ample are  coffee,  cocoa,  tea  and  hemp,  sisal  grass  and  similar 
fibers.  The  latter  are  produced  in  the  United  States  on  a 
moderate  scale  but  the  imported  product  has  been  essential 
to  the  twine  and  cordage  manufacturing  industries. 

Competition  with  domestic  producers  has  been  confined 
mainly  to  imported  wool,  hides  and  skins,  sugar,  wines  and 
spirits.  Foreign  wool  has  been  imported  for  use  in  the  Ameri- 
can woolen  industries  even  though  protective  duties  were  ap- 
plicable imtil  December  1,  1913,  because  domestic  wool  pro- 
duction was  insufficient  and  in  part  because  a  portion  of  the 
wool  imports  are  non-competitive.^  The  inadequacy  of  home 
production,  likewise,  made  possible  the  heavy  importation  of 
hides  and  skins,  and  foreign  cane  sugar  has  long  been  in  di- 
rect competition  with  domestic  cane  and  sugar  beet  produc- 
tion. It  is,  moreover,  probable,  that  since  wool  and  hides 
and  skins  are  placed  upon  the  free  list  by  the  act  of  October, 
1913,  and  the  duties  on  sugar  are  reduced,  this  competition 
may  further  increase.  Foreign  wines  and  spirits  are  also  in 
competition  with  domestic  liquors  and  with  the  raw  farm 
products  from  which  they  are  made,  but  the  special  demand 
upon  which  they  depend  causes  them  to  be  imported,  even 
though  they  are  restricted  by  heavy  import  duties. 

The  agricultural  import  trade  as  a  whole  may  be  expected 
to  increase  in  the  future.  Conditions  of  domestic  supply  and 
demand  tend  to  affect  it  exactly  contrary  to  the  way  they  affect 
the  agricultural  exports.  The  demand  for  many  of  the  im- 
ported foods,  particularly  those  of  tropical  and  subtropical 
growth,  is  steadily  advancing,  and  the  expansion  of  the  woolen 
and  cotton  textile,  twine,  cordage,  and  leather  industries 
points  to  the  further  importation  of  foreign  raw  materials  of 
agricultural  origin.  Restrictive  tariff  duties  on  most  agri- 
cultural imports  have,  moreover,  been  either  reduced  or  en- 

^See  chap,  x,  p.  207. 


w 


386 


AGRICULTURAL  COMMERCE 


tirely  removed,  purchasing,  shipping  and  financial  methods 
are  being  improved,  trade  relations  with  the  countries  in 
which  most  of  the  agricultural  imports  originate  are  improv- 
ing, and  their  output  is  with  few  exceptions  increasing  at  lea^t 
as  rapidly  as  market  conditions  warrant. 

BIBLIOGRAPHY 

Johnson,  Emory  R.    History  of  Domestic  and  Foreign  Com- 
merce of  the  United  States,  Vol.  II  (1915). 

Smith,  R.  E.    Wheat  Fields  and  Markets  of  the  World  (1908) 

Chicago  Board  of  Trade :    Annual  Report  on  Trade  and  Com- 
merce of  Chicago  (annual). 

United  States  Bureau  of  Crop  Estimates  (Department  of  Ag- 
riculture) :     The  Agricultural  Outlook  (Nov.  23    1914) 
pp.  20-23.  .  ' 

United  States  Bureau  of  Foreign  and  Domestic  Commerce: 

Monthly   Summary  of  Commerce  and  Finance. 

Statistical  Abstract  of  United  States  (annual).* 
United  States  Commerce  and  Navigation  Report   (an- 
nual). 

Utilization  of  Potatoes  in  Europe  (1914). 

United  States  Bureau  of  Statistics  (Department  of  Agricul- 
ture) : 

Cereal  Production  of  Europe,  Bulletin  No.  68  (1908). 

Crop  Export  Movement,  Bulletin  No.  38  (1905). 

Foreign  Restrictions   on  American  Meat,  Reprint  No. 

^Grain  Movement  in  the  Great  Lakes  Region,  Bulletin 

No.  81  (1910). 

• International  Trade  in  Farm  Products,  1901-1910  Bul- 
letin No.  103  (1913). 

^Marketing   Grain   and   Livestock   in   the  Pacific   Coast 

Region,  Bulletin  No.  89  (1911). 

Meat  in  Foreign  Markets— Tariffs  of  Fourteen  Import- 
ing Nations  and  Countries  of  Surplus,  Bulletin  No.  39 
(1905). 

^Meat  Animals  and  Packing  House  Products,  Bulletin 

No.  40  (1906). 

■ Meat  Supply  and  Surplus,  Bulletin  No.  55  (1907). 

■ Russian  Wheat  and  Wheat  Flour  in  European  Markers 

Bulletin  No.  66  (1908).  ' 


FOREIGN  MARKETS  AND  INFLUENCES        387 

^""'^^  toe)*^'  ^""^^'^  ^^  Statistics   (Department  of  Agricul- 
—— Russia's  Wheat  Surplus,  Bulletin  No.  42   (1906) 

No  33  0^2)  ""^  *^'  ^""''^^  ^'^'""  1612-1911,  c'ircular 
United    States    Bureau  of  Statistics   (Treasury  Department)  : 

wS'"''-'  t  ^t'J'^^o"*^"^'  ^""^  ^^^'^  Distribution  1790- 
Sll9^  Summary  of  Commerce  and  Finance, 

(See  detailed  bibliography  in  Emory  R.  Johnson:  History 
of  Domestic  and  Foreign  Commerce  of  the  United  States,  VoT 


ill 

III 


("> 


APPENDIX 

UNITED  STATES  COTTON  FUTURES  ACT 

(38  Stat.  L.,  693.) 

AN  ACT  To  tax  the  privilege  of  dealing  on  exchanges,  boardi 
of  trade,  and  similar  places  in  contracts  of  sale  of  cotton 
for  future  delivery,  and  for  other  purposes. 

Be  it  enacted  hy  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assemhled.  That 
this  Act  shall  be  known  by  the  short  title  of  the  "United  States 
cotton  futures  Act." 

Sec.  2.  That,  for  the  purposes  of  this  Act,  the  term  "con- 
tract of  sale"  shall  be  held  to  include  sales,  agreements  of  sale, 
and  agreements  to  sell.  That  the  word  "person,"  wherever 
used  in  this  Act,  shall  be  construed  to  import  the  plural  or  sin- 
gular, as  the  case  demands,  and  shall  include  individuals,  asso- 
ciations, partnerships,  and  corporations.  When  construing  and 
enforcing  the  provisions  of  this  Act,  the  act,  omission,  or 
failure  of  any  official,  agent,  or  other  person  acting  for  or  em- 
ployed by  any  association,  partnership,  or  corporation  within 
the  scope  of  his  employment  or  office,  shall,  in  every  case,  also 
be  deemed  the  act,  omission,  or  failure  of  such  association,  part- 
nership, or  corporation  as  well  as  that  of  the  person. 

Sec.  3.  That  upon  each  contract  of  sale  of  any  cotton  for 
future  delivery  made  at,  on,  or  in  any  exchange,  board  of  trade, 
or  similar  institution  or  place  of  business,  there  is  hereby  levied 
a  tax  in  the  nature  of  an  excise  of  2  cents  for  each  pound  of 
the  cotton  involved  in  any  such  contract. 

Sec.  4.  That  each  contract  of  sale  of  cotton  for  future  de- 
livery mentioned  in  section  three  of  this  Act  shall  be  in  writing 
plainly  stating,  or  evidenced  by  written  memorandum  showing, 
the  terms  of  such  contract,  including  the  quantity  of  the  cot- 
ton involved  and  the  names  and  addresses  of  the  seller  and 
buyer  in  such  contract,  and  shall  be  signed  by  the  party  to 
be  charged,  or  by  his  agent  in  his  behalf.  If  the  contract  or 
memorandum  specify  in  bales  the  quantity  of  the  cotton  in- 

389 


;l     I 


390 


APPENDIX 


f^ 


volved,  witliout  giving  the  weight,  each  bale  shall,  for  the  pur- 
poses of  this  Act,  be  deemed  to  weigh  five  hundred  pounds. 

Sec.  5.  That  no  tax  shall  be  levied  under  this  Act  on  any 
contract  of  sale  mentioned  in  section  three  hereof,  if  the  con- 
tract comply  with  each  of  the  following  conditions: 

First.  Conform  to  the  requirernents  of  section  four  of,  and 
the  rules  and  regulations  made  pursuant  to,  this  Act. 

Second.  Specify  the  basis  grade  for  the  cotton  involved  in 
the  contract,  which  shall  be  one  of  the  grades  for  which  stand- 
ards are  established  by  the  Secretary  of  Agriculture  except 
grades  prohibited  from  being  delivered  on  a  contract  made 
under  this  section  by  the  fifth  subdivision  of  this  section,  the 
price  per  pound  at  which  the  cotton  of  such  basis  grade  is  con- 
tracted to  be  bought  or  sold,  the  date  when  the  purchase  or  sale 
was  made,  and  the  month  or  months  in  which  the  contract  is 
to  be  fulfilled  or  settled:  Provided,  That  middling  shall  be 
deemed  the  basis  grade  incorporated  into  the  contract  if  no 
other  basis  grade  be  specified  either  in  the  contract  or  in  the 
memorandum  evidencing  the  same. 

Third.  Provide  that  the  cotton  dealt  with  therein  or  de- 
livered thereunder  shall  be  of  or  within  the  grades  for  which 
standards  are  established  by  the  Secretary  of  Agriculture  ex- 
cept grades  prohibited  from  being  delivered  on  a  contract  made 
under  this  section  by  the  fifth  subdivision  of  this  section  and 
no  other  grade  or  grades. 

Fourth.  Provide  that  in  case  cotton  of  grade  other  than  the 
basis  grade  be  tendered  or  delivered  in  settlement  of  such  con- 
tract, the  differences  above  or  below  the  contract  price  which 
the  receiver  shall  pay  for  such  grades  other  than  the  basis 
grade  shall  be  the  actual  commercial  differences,  determined 
as  hereinafter  provided. 

Fifth.  Provide  that  cotton  that,  because  of  the  presence 
of  extraneous  matter  of  any  character  or  irregularities  or  de- 
fects, is  reduced  in  value  below  that  of  Good  Ordinary,  or 
cotton  that  is  below  the  grade  of  Good  Ordinary,  or,  if  tinged, 
cotton  that  is  below  the  grade  of  Low  Middling,  or,  if  stained, 
cotton  that  is  below  the  grade  of  Middling,  the  grades  men- 
tioned being  of  the  official  cotton  standards  of  the  United 
States,  or  cotton  that  is  less  than  seven-eighths  of  an  inch  in 
length  of  staple,  or  cotton  of  perished  staple  or  of  immature 
staple,  or  cotton  that  is  "gin  cut"  or  reginned,  or  cotton  that 
is  ''repacked"  or  "false  packed"  or  "mixed  packed"  or  "water 
packed,"  shall  not  be  delivered  on,  under,  or  in  settlement  of 
such  contract. 


APPENDIX 


391 


Sixth.  Provide  that  all  tenders  of  cotton  under  such  con- 
tract shall  be  the  full  number  of  bales  involved  therein,  except 
that  such  variations  of  the  number  of  bales  may  be  permitted 
as  is  necessary  to  bring  the  total  weight  of  the  cotton  tendered 
within  the  provisions  of  the  contract  as  to  weight ;  that,  on  the 
fifth  business  day  prior  to  delivery,  the  person  making  the  ten- 
der shall  give  to  the  person  receiving  the  same  written  notice 
of  the  date  of  delivery,  and  that,  on  or  prior  to  the  date  so  fixed 
for  delivery,  and  in  advance  of  final  settlement  of  the  contract, 
the  person  making  the  tender  shall  furnish  to  the  person  re- 
ceiving the  same  a  written  notice  or  certificate  stating  the 
grade  of  each  individual  bale  to  be  delivered  and,  by  means  of 
marks  or  numbers,  identifying  each  bale  with  its  grade. 

Seventh.  Provide  that,  in  case  a  dispute  arises  between  the 
person  making  the  tender  and  the  person  receiving  the  same,  as 
to  the  quality,  or  the  grade,  or  the  length  of  staple,  of  any  cot- 
ton tendered  under  the  contract,  either  party  may  refer  the 
question  to  the  Secretary  of  Agriculture  for  determination, 
and  that  such  dispute  shall  be  referred  and  determined,  and  the 
costs  thereof,  fixed,  assessed,  collected  and  paid,  in  such  man- 
ner and  in  accordance  with  such  rules  and  regulations  as  may 
be  prescribed  by  the  Secretary  of  Agriculture. 

The  provisions  of  the  third,  fourth,  fifth,  sixth,  and  seventh 
subdivisions  of  this  section  shall  be  deemed  fully  incorporated 
into  any  such  contract  if  there  be  written  or  printed  thereon, 
or  on  the  memorandum  evidencing  the  same,  at  or  prior  to  the 
time  the  same  is  signed,  the  phrase,  "Subject  to  United  States 
cotton  futures  Act,  section  five." 

The  Secretary  of  Agriculture  is  authorized  to  prescribe  rules 
and  regulations  for  carrying  out  the  purposes  of  the  seventh 
subdivision  of  this  section,  and  his  findings,  upon  any  dispute 
referred  to  him  under  said  seventh  subdivision,  made  after  the 
parties  in  interest  have  had  an  opportunity  to  be  heard  by  him  or 
such  officer,  officers,  agent,  or  agents  of  the  Department  of  Agri- 
culture as  he  may  designate,  shall  be  accepted  in  the  courts 
of  the  United  States  in  all  suits  between  such  parties,  or  their 
privies,  as  prima  facie  evidence  of  the  true  quality,  or  grade, 
or  length  of  staple,  of  the  cotton  involved. 

Sec.  6.  That  for  the  purposes  of  section  five  of  this  Act 
the  differences  above  or  below  the  contract  price  which  the 
receiver  shall  pay  for  cotton  of  grades  above  or  below  the  basis 
grade  in  the  settlement  of  a  contract  of  sale  for  the  future 
delivery  of  cotton  shall  be  determined  by  the  actual  commercial 
differences  in  value  thereof  upon  the  sixth  business  day  prior 


,1  ' 


■\ 


i 

1 


a92 


APPENDIX 


to  the  day  fixed,  in  accordance  with  the  sixth  subdivision  of 
section  five,  for  the  delivery  of  cotton  on  the  contract,  estab- 
lished by  the  sale  of  spot  cotton  in  the  market  where  the  future 
transaction  involved  occurs  and  is  consummated  if  such  mar- 
ket be  a  bona  fide  spot  market;  and  in  the  event  there  be  no 
bona  fide  spot  market  at  or  in  the  place  in  which  such  future 
transaction  occurs,  then,  and  in  that  case,  the  said  differences 
above  or  below  the  contract  price  which  the  receiver  shall  pay 
for  cotton  above  or  below  the  basis  grade  shall  be  determined 
by  the  average  actual  commercial  differences  in  value  thereof, 
upon  the  sixth  business  day  prior  to  the  day  fixed,  in  accordance 
with  the  sixth  subdivision  of  section  five,  for  delivery  of  cotton 
on  the  contract,  in  the  spot  markets  of  not  less  than  five  places 
designated  for  the  purpose  from  time  to  time  by  the  Secretary 
of  Agriculture,  as  such  values  were  established  by  the  sales  of 
spot  cotton,  in  such  designated  five  or  more  markets :  Provided, 
That  for  the  purposes  of  this  section  such  values  in  the  said 
spot  markets  be  based  upon  the  standards  for  grades  of  cotton 
established  by  the  Secretary  of  Agriculture:  And  provided 
further.  That  whenever  the  value  of  one  grade  is  to  be  deter- 
mined from  the  sale  or  sales  of  spot  cotton  of  another  grade 
or  grades,  such  value  shall  be  fixed  in  accordance  with  rules 
and  regulations  which  shall  be  prescribed  for  the  purpose  by  the 
Secretary  of  Agriculture. 

Sec.  7.  That  for  the  purposes  of  this  Act  the  only  markets 
which  shall  be  considered  bona  fide  spot  markets  shall  be  those 
which  the  Secretary  of  Agriculture  shall,  from  time  to  time, 
after  investigation,  determine  and  designate  to  be  such,  and 
of  which  he  shall  give  public  notice. 

Sec.  8.  That  in  determining,  pursuant  to  the  provisions 
of  this  Act,  what  markets  are  bona  fide  spot  markets,  the  Sec- 
retary of  Agriculture  is  directed  to  consider  only  markets  in 
which  spot  cotton  is  sold  in  such  volume  and  under  such  con- 
ditions as  customarily  to  reflect  accurately  the  value  of  mid- 
dling cotton  and  the  differences  between  the  prices  or  values 
of  middling  cotton  and  of  other  grades  of  cotton  for  which 
standards  shall  have  been  established  by  the  Secretary  of  Agri- 
culture: Provided,  That  if  there  be  not  sufficient  places,  in 
the  markets  of  which  are  made  bona  fide  sales  of  spot  cotton 
of  grades  for  which  standards  are  established  by  the  Secretary 
of  Agriculture,  to  enable  him  to  designate  at  least  five  spot 
markets  in  accordance  with  section  six  of  this  Act,  he  shall, 
from  data  as  to  spot  sales  collected  by  him,  make  rules  and 
regulations  for  determining  the  actual  commercial  differences 


APPENDIX 


393 


in  the  value  of  spot  cotton  of  the  grades  established  by  him 
as  reflected  by  bona  fide  sales  of  spot  cotton,  of  the  same  or 
different  grades,  in  the  markets  selected  and  designated  by  him, 
from    time    to    time,    for    that    purpose,    and    in    that    event, 
differences   in  value  of  cotton  of  various  grades  involved  in 
contracts    made   pursuant    to    section   five    of    this    Act    shall 
be*  determined    in    compliance   with   such    rules    and   regula- 
tions. .  1      .     1 
Sec.  9.     That  the  Secretary  of  Agriculture  is  authorized, 
from  time  to  time,  to  establish  and  promulgate  standards  of 
cotton  by  which  its  quality  or  value  may  be  judged  or  de- 
termined,  including   its  grade,  length  of  staple,   strength  of 
staple,  color,  and  such  other  qualities,  properties,  and  conditions 
as  may  be  standardized  in  practical  form,  which,  for  the  purposes 
of  this  Act,  shall  be  known  as  the  "Official  cotton  standards  of 
the  United  States,"  and  to  adopt,  change,  or  replace  the  standard 
for  any  grade  of  cotton  established  under  the  Act  making  appro- 
priations for  the  Department  of  Agriculture  for  the  fiscal  year 
ending  June  thirtieth,  nineteen  hundred  and  nine  (Thirty-fifth 
Statutes  at  Large,  page  two  hundred  and  fifty-one),  and  Acts 
supplementary  thereto :  Provided,  That  any  standard  of  any  cot- 
ton established  and  promulgated  under  this  Act  by  the  Secretary 
of  Agriculture  shall  not  be  changed  or  replaced  within  a  period 
less  than  one  year  from  and  after  the  date  of  the  promulga- 
tion thereof  by  the  Secretary  of  Agriculture :    Provided  further. 
That,  subsequent  to  six  months  after  the  date  section  three  of 
this  Act  becomes  effective,  no  change  or  replacement  of  any 
standard  of  any  cotton  established  and  promulgated  under  this 
Act  by  the  Secretary  of  Agriculture  shall  become  effective  until 
after  one  year's  public  notice  thereof,  which  notice  shall  specify 
the  date  when  the  same  is  to  become  effective.    The  Secretary 
of  Agriculture  is  authorized  and  directed  to  prepare  practical 
forms  of  the  official  cotton  standards  which  shall  be  established 
by  him,  and  to  furnish  such  practical  forms  from  time  to  time, 
upon  request,  to  any  person,  the  cost  thereof,  as  determined  by 
the  Secretary  of  Agriculture,  to  be  paid  by  the  person  request- 
ing the  same,  and  to  certify  such  practical  forms-  under  the 
seal  of  the  Department  of  Agriculture  and  under  the  signa- 
ture of  the  said  Secretary,  thereto  affixed  by  himself  or  by  some 
official  or  employee  of  the  Department  of  Agriculture  thereunto 
duly  authorized  by  the  said  Secretary. 

Sec.  10.  That  no  tax  shall  be  levied  under  this  Act  on  any 
contract  of  sale  mentioned  in  section  three  hereof,  if  the  con- 
tract comply  with  each  of  the  following  conditions: 


394 


APPENDIX 


!'  .",  't 


First.  Conform  to  the  rules  and  reflations  made  pursuant 
to  this  Act. 

Second.  Specify  the  grade,  type,  sample,  or  description  of 
the  cotton  involved  in  the  contract,  the  price  per  pound  at 
which  such  cotton  is  contracted  to  be  bought  or  sold,  the  date 
of  the  purchase  or  sale,  and  the  time  when  shipment  or  de- 
livery of  such  cotton  is  to  be  made. 

Third.  Provide  that  cotton  of  or  within  the  grade  or  of  the 
type,  or  according  to  the  sample  or  description,  specified  in 
the  contract  shall  be  delivered  thereunder,  and  that  no  cotton 
which  does  not  conform  to  the  type,  sample,  or  description,  or 
which  is  not  of  or  within  the  grade,  specified  in  the  contract 
shall  be  tendered  or  delivered  thereunder. 

Fourth.  Provide  that  the  delivery  of  cotton  under  the  con- 
tract shall  not  be  effected  by  means  of  "set-off''  or  "ring"  set- 
tlement, but  only  by  the  actual  transfer  of  the  specified  cotton 
mentioned  in  the  contract.  . 

The  provisions  of  the  first,  third,  and  fourth  siAdivisions 
of  this  section  shall  be  deemed  fully  incorporated  into  any  such 
contract  if  there  be  written  or  printed  thereon,  or  on  the  docu- 
ment or  memorandum  evidencing  the  same,  at  or  prior  to  the 
time  the  same  is  entered  into,  the  words  "Subject  to  United 
States  cotton  futures  Act,  section  ten." 

This  Act  shall  not  be  construed  to  impose  a  tax  on  any  sale 
of  spot  cotton. 

This  section  shall  not  be  construed  to  apply  to  any  contract 
of  sale  made  in  compliance  with  section  five  of  this  Act. 

Sec.  11.  That  upon  each  order  transmitted,  or  directed  or 
authorized  to  be  transmitted,  by  any  person  within  the  United 
States  for  the  making  of  any  contract  of  sale  of  cotton  grown 
in  the  United  States  for  future  delivery  in  cases  in  which  the 
contract  of  sale  is  or  is  to  be  made  at,  on,  or  in  any  exchange, 
board  of  trade,  or  similar  institution  or  place  of  business  in 
any  foreign  country,  there  is  hereby  levied  an  excise  tax  at 
the  rate  of  2  cents  for  each  pound  of  the  cotton  so  ordered  to 
be  bought  or  sold  under  such  contract:  Provided,  That  no 
tax  shall  be  levied  under  this  Act  on  any  such  order  if  the 
contract  made  in  pursuance  thereof  comply  either  with  the  con- 
ditions specified  in  the  first,  second,  third,  fourth,  fifth,  and 
sixth  subdivisions  of  section  five,  or  with  all  the  conditions 
specified  in  section  ten  of  this  Act,  except  that  the  quantity  of 
the  cotton  involved  in  the  contract  may  be  expressed  therein  in 
terms  of  kilograms  instead  of  pounds. 

Sec.  12.   That  the  tax  imposed  by  section  three  of  this  Act 


APPENDIX 


395 


shall  be  paid  by  the  seller  of  the  cotton  involved  in  the  contract  of 
sale,  by  means  of  stamps  which  shall  be  affixed  to  such  contracts, 
or  to  the  memoranda  evidencing  the  same,  and  canceled  in  com- 
pliance with  rules  and  regulations  which  shall  be  prescribed 
by  the  Secretary  of  the  Treasury.  The  tax  imposed  by  section 
eleven  of  this  Act  shall  be  paid  by  the  sender  of  the  order  and 
collected  in  accordance  with  rules  and  regulations  which  shall 
be  prescribed  by  the  Secretary  of  the  Treasury. 

Sec.  13.  That  no  contract  of  sale  of  cotton  for  future  de- 
livery mentioned  in  section  three  of  this  Act  "which  does  not 
conform  to  the  requirements  of  section  four  hereof  and  has  not 
the  necessary  stamps  affixed  thereto  as  required  by  section 
twelve  hereof  shall  be  enforceable  in  any  court  of  the  United 
States  by,  or  on  behalf  of,  any  party  to  such  contract  or  his 
privies.  That  no  contract  of  sale  of  cotton  for  future  delivery, 
made  in  pursuance  of  any  order  mentioned  in  section  eleven  of 
this  Act,  shall  be  enforceable  in  any  court  of  the  United  States 
by  or  on  behalf  of  any  party  to  such  contract  or  his  privies  un- 
less it  conforms  to  the  requirements  of  section  four  hereof  and 
the  tax  imposed  by  section  eleven  upon  the  order  for  such  con- 
tract shall  have  been  paid  in  compliance  with  section  twelve  of 
this  Act. 

Sec.  14.  That  the  Secretary  of  the  Treasury  is  authorized 
to  make  and  promulgate  such  rules  and  regulations  as  he  may 
deem  necessary  to  collect  the  tax  imposed  by  this  Act  and 
otherwise  to  enforce  its  provisions.  Further  to  effect  this  pur- 
pose, he  shall  require  all  persons  coming  within  its  provisions 
to  keep  such  records  and  statements  of  account  as  will  fully 
and  correctly  disclose  all  transactions  mentioned  in  sections 
three  and  eleven  of  this  Act;  and  he  may  appoint  agents  to 
conduct  the  inspection  necessary  to  collect  said  tax  and  other- 
wise to  enforce  this  Act  and  all  rules  and  regulations  made 
by  him  in  pursuance  hereof,  and  may  fix  the  compensation  of 
such  agents. 

Sec.  15.  That  any  person  liable  to  the  payment  of  any  tax 
imposed  by  this  Act  who  fails  to  pay,  or  evades  or  attempts  to 
evade  the  payment  of  such  tax,  and  any  person  who  otherwise 
violates  any  provision  of  this  Act,  or  any  rule  or  regulation 
made  in  pursuance  hereof,  shall  be  deemed  guilty  of  a  misde- 
meanor, and,  upon  conviction  thereof,  shall  be  fined  not  less 
than  $100  nor  more  than  $20,000,  in  the  discretion  of  the  court; 
and,  in  case  of  natural  persons,  may,  in  addition,  be  punished 
by  imprisonment  for  not  less  than  sixty  days  nor  more  than 
three  years,  in  the  discretion  of  the  court. 


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396 


APPENDIX 


Sec.  16.  That  in  addition  to  the  foregoing  punishment 
there  is  hereby  imposed,  on  account  of  each  violation  of  this 
Act,  a  penalty  of  $2,000,  to  be  recovered  in  an  action  founded 
on  this  Act  in  the  name  of  the  United  States  as  plaintiff,  and 
when  so  recovered  one-half  of  said  amount  shall  be  paid  over 
to  the  person  giving  the  information  upon  which  such  recovery 
was  based.  It  shall  be  the  duty  of  United  States  attorneys,  to 
whom  satisfactory  evidence  of  violations  of  this  Act  is  fur- 
nished, to  institute  and  prosecute  actions  for  the  recovery  of 
the  penalties  prescribed  by  this  section. 

Sec.  17.  That  no  person  whose  evidence  is  deemed  material 
by  the  office  prosecuting  on  behalf  of  the  United  States  in  any 
case  brought  under  any  provision  of  this  Act  shall  withhold 
his  testimony  because  of  complicity  by  him  in  any  ^violation 
of  this  Act  or  of  any  regulation  made  pursuant  to  this  Act, 
but  any  such  person  called  by  such  officer  who  testifies  in 
such  case  shall  be  exempt  from  prosecution  for  any  offense  to 
which  his  testimony  relates. 

Sec.  18.  That  the  payment  of  any  tax  levied  by  this  Act 
shall  not  exempt  any  person  from  any  penalty  or  punishment 
now  or  hereafter  provided  by  the  laws  of  any  State  for  entering 
into  contracts  of  sale  of  cotton  for  future  delivery,  nor  shall 
the  payment  of  any  tax  imposed  by  this  Act  be  held  to  prohibit 
any  State  or  municipality  from  imposing  a  tax  on  the  same 
transaction. 

Sec.  19.  That  there  is  hereby  appropriated,  out  of  any 
moneys  in  the  Treasury  not  otherwise  appropriated,  for  the 
fiscal  year  ending  June  thirtieth,  nineteen  hundred  and  fifteen, 
the  sum  of  $50,000  or  so  much  thereof  as  may  be  necessary 
to  enable  the  Secretary  of  the  Treasury  to  carry  out  the  pro- 
visions of  this  Act. 

Sec.  20.  That  there  is  hereby  appropriated,  out  of  any 
moneys  in  the  Treasury  not  otherwise  appropriated,  available 
until  expended,  the  sum  of  $150,000  or  so  much  thereof  as  may 
be  necessary  to  enable  the  Secretary  of  Agriculture  to  make 
such  investigations,  to  collect  such  data,  and  to  use  such  meth- 
ods and  means  as  he  may  deem  necessary  to  determine  and 
designate  what  are  bona  fide  spot  markets  within  the  meaning 
of  this  Act,  to  prescribe  rules  and  regulations  pursuant  to  sec- 
tions five,  six,  and  eight  hereof,  to  establish  and  promulgate 
standards  for  cotton  and  to  furnish  practical  forms  thereof  as 
authorized  by  section  nine  hereof,  to  publish  the  results  of  his 
investigations,  to  pay  rent  and  to  employ  such  persons  as  he 
may  deem  necessary,  in  the  city  of  Washington  and  elsewhere. 


APPENDIX 


397 


The  Secretary  of  Agriculture  is  hereby  directed  to  publish  from 
time  to  time  the  results  of  investigations  made  in  pursuance  of 
this  Act.  All  sums  collected  by  the  Secretary  of  Agricul- 
ture as  costs  under  section  five,  or  for  furnishing  practical 
forms  under  section  nine  of  this  Act,  shall  be  deposited  and 
covered  into  the  Treasury  as  miscellaneous  receipts. 

Sec.  21.  That  sections  nine,  nineteen,  and  twenty  of  this 
Act  and  all  provisions  of  this  Act  authorizing  rules  and  regu- 
lations to  be  prescribed  shall  be  effective  immediately.  All 
other  sections  of  this  Act  shall  become  and  be  effective  on  and 
after  six  months  from  the  date  of  the  passage  of  this  Act: 
Provided,  That  nothing  in  this  Act  shall  be  construed  to  apply 
to  any  contract  of  sale  of  any  cotton  for  future  delivery  men- 
tioned in  section  three  of  this  Act  which  shall  have  been  made 
prior  to  the  date  when  section  three  becomes  effective. 

Approved,  August  18,  1914. 


il' 


INDEX 


Agricultural    commerce,    1 

Agricultural  crops,  classification 
^  of,  4 

Agricultural  markets  and  proc- 
esses, classification  of,   12 

Agricultural  produce,  insurance 
of.     See  Insurance 

Agricultural  produce  growers ' 
local  markets  for,  12 

Animal  products  of  farms,  value 
of,  8.     See  also  Livestock 

Auction  sales  of  produce,  21 

Barley,  local  trade  in.    See  Local 

trade 
receipts  and   shipments  of,  at 

primary       and       seaboard 

markets,  52 
Bill  of  lading,  liability  clause  in, 

318 
uses  of,  42,  121,  325,  335,  337' 
Bucket  shops,   151 
Burley  district  for  leaf  tobacco, 

226 

Cattle,  feeding  grounds  for,  165 
Cattle  growing,   extent  of,   164, 

166.     See  also  Livestock 
Central  markets,  for  cotton,  116, 
123 
for  grain,  31 
for    livestock,    166,    181,    182, 

185,   186,   187 
for  wool,  212,  213,  214 
trade  organization  of,   19 
wholesale,   13,  14 
See  also  Primary  Markets 
Cigar  tobacco.     See  Tobacco,  ci- 
gar 
Cold  storage,  effect  of,  on  prices, 

357 
Combination    and    consolidation, 
effect  of,  on  prices,  356 


Commerce,  defined,  2 
in  farm  products,   10 
study  of,  subdivided,  2 
Commercial   costs,    effect    of,    on 

prices,  360 
Commission     houses,     American, 

26,  44,  84,  85,  251 
Competition,  at  central  livestock 
markets,   182,   184 
extent  of,  between  central  cot- 
ton markets,   123 
between  primary  grain  mar- 
kets, 55 
of     foreign     and     domestic 
wool,  207 
Concentration  points  for  cotton, 

functions  of,  123,  124 
Confirmed  bankers'  credit,  337 
Consumers '  leagues,  25 
Contracts,     types     of,     used     by 
country    elevators    in    sell- 
ing grain,    86 
Cooperative  associations,   48,  55, 
57,  108,  178,  207,  217,  255 
Corn     crop,    receipts    and     ship- 
ments of,   at  primary  and 
seaboard  markets,  52 
size  of,  32,  33 
use  of,  for  feeding  stock,  32 
Corners,  nature  and  effect  of,  on 

prices,  161,  355 
Cost  of  transportation,  as  a  fac- 
tor       influencing        grain 
prices,    88,    91,    113,    132, 
199,  219 
See  Transportation,  charges 
Cotton,  advances  on,  to  growers, 
104,  107 
classification  of,  95,   97 
consumers  of,  number  of,  94 
consumption    of,    by    southern 

mills,  106,  118 
cost  of  production  of,  109 


399 


400 


INDEX 


Cotton,  exports  of,  116 

effect  of.  Cotton  Futures  Act 
on  dealings  in,  112 
future  contracts  on  the  price 
of,  133 
factors    affecting    future    and 
central   market   prices   of, 
133 
grades  of,  273 

grading  and  inspection  of,  270, 
271,  281 
forms    for,    in    New    York, 
278-284 
growers  of,  number  of,  94 
hauling  of,  102 
limits  for  buying,  112,  114 
loans  on,   104,   105,  333 
local  handling  of,  94,  100,  102 
marking   and   tagging   of,    119 
New  York  grading  system  for, 

274 
ocean  freight  rates  on,  132 
price   of,    109,    110,    111,    114, 
131 

effect     of    future    contracts 
on,    111 
price  differences  in,  146-148 
purchase   of,   at   concentration 

points,    124 

sales  of,  to  domestic  mills,  126 

to  foreign  buyers,   108 

in  foreign  markets,  129,  130 

by     growers,     to     exporting 

houses    and    brokers,    105, 

106 

to  local  merchants,  104 

tare  rules  relating  to,  113,  130 

through    bills    of    lading    for, 

121 
time    of    sale    of,    to    northern 

mills,  128 
types  of  contracts  used  in  sell- 
ing,       at        concentration 
points,  124 
world's  production  of,  98,  99 
Cotton  acreage,  95,  96,  109 
Cotton  bailing,  100,  101 
Cotton  competition  between  cen- 
tral markets,  123 
Cotton  compressing,   120,  121 
Cotton  concentration  points,  106, 

122,    123 
Cotton    crop,    extent    of,    94-96, 
109 


Cotton      exchanges.        See     Ex- 

changes 
Cotton  future  contracts.   See  Fu- 
ture contracts 
Cotton  Futures  Act,  effect  of,  on 
dealings,  144,  147,  159 
text  of,  142,  389 
Cotton  ginning,  100,   101 
Cotton  gins,  number  of,  94 
Cotton-growing  belt,  94 
Cotton  hedging.     See  Hedging 
Cotton  insurance,  121 
Cotton-receiving  ports,  125,  126 
Cotton  spot  sales  in  New  York, 

152 
Cotton    storage    places,    number 

of,  94 
Country  grain  elevator.    See  Ele- 
vators 
Credit,  farm,  shortcomings  of,  329 
long-term  mortgage,  327 
rural,  327-329 
Crop  reports,  collection  and  dis- 
semination of,  293,  301 
government,  294,  295,  298 

purpose  of,  294 
private,   302 
state,  301 

township,    county    and    special 
correspondents  for,   295 
Crop-moving  funds,  flow  of,  338 
Crops,    Bureau    of    Foreign    and 
Domestic     Commerce,     re- 
ports  on,   301 
census  figures  on,  299 
classification   of,   4 
financing  of,  327 
primary,  5,  6,  7 
production    of,    quantity    mar- 
keted, and  farm  value  of, 
35 
proportion  of,  shipped  out  of 
county  where  grown,  6 
Cyclone  insurance.  See  Insurance 

Dark  tobacco.  See  Tobacco,  dark 
Dealers^  loans  on  produce,  332 
Differences    in   cotton,    111 
Distribution  and  production  dis- 
tinguished,   1 
Documentary  bill  of  exchange,  337 
Domestic      animals      on      farms, 

value  of,  8,  9 
Domestic   trade   settlements,  335 


INDEX 


401 


Elevators,   country,   classification 
of,  40 
country  grain,   29,  38,  39,  40- 

45,  84 
daily  reports  of  shipments  of 

grain  by,   68 
federal  regulation  of,  78 
functions  of,  29 
regulation     of,     by     the     ex- 
changes, 74-78 
by  the  state,  65 
terminal,  50,  61-63,  67 
functions  of,  62 
ownership  of,  63 
report  of  receipts  and  ship- 
ments at,  70 
sale  of  grain  stored  in,  86 
sources  of  profit  of,  78 
transfer  of  grain  from  grower 

to,  36 
warehouse    receipts    for    grain 
in,  71,  74 
Exchange,  bills  of,  337 
Exchanges,    clearing    house    for 
settling  contracts  on,    139 
corporate  and  business  organi- 
zation  of,    137-139 
effect  of,  on  prices,  111,  160 
functions    of,    20,    151-158 
influence    of,    on    the    sale    of 

farm   produce,   136 
for  livestock,   188,   189 
membership  in,  138 
regulation    of    terminal    eleva- 
tors by,  74 
sale  of  grain  on  seaboard,  87 
for  tobacco,  231,  232 
Export    tobacco.      See    Tobacco, 

export 
Export  settlements,  336 
Export  trade,  influences  on,  378 
unfavorable       influences       on, 
380 
Exporting     concerns,     types     of 

American,  25 
Exporting  houses,  purchase  from 
growers  of  cotton  by,  105 
methods  of,  25 
Exports,    of    agricultural    prod- 
ucts, history  of,  368 
of  cotton,  116,  118 
European  markets  for,  376 
of   food,   274 
foreign  markets  for,  276 


Exports,  of  fruit.    See  Fruit,  ex- 
ports of 
of  grain,   87 
history  of,  368-375 
of  livestock,  186 
non-European  markets  for,  378 
other  than  food,  375 
of  Tobacco.     See  Tobacco,  ex- 
ports of 

Farm     animals,     insurance     of. 
See    Insurance    and    Live- 
stock 
Farm    credits,    shortcomings    of, 

329 
Farmers '    cooperative    elevators. 

See  Elevators 
Financial      settlement,      methods 

of,  325,  335 
Financing    the    crops,    154,    327, 

338 
Fire  insurance.     See  Insurance 
Foreign  commerce,  in  farm  prod- 
ucts,  10 
in  tobacco.     See  Tobacco,  for- 
eign  trade   in 
See  also  Exports  and  Imports 
Fruit  growers'  cooperative  asso- 
ciations, 255 
Fruit-growing   districts,   239 
Fruits,    citrus,    242 
classes  of,  239 
classes  of  markets  for,  248 
direct  sales  of,  by  growers,  253 
distribution    of,    in    wholesale 

markets,  250 
exports  of,   249 
grading  of,  244 
importation  of,  243 
local  dealers  in,  250 
marketing    of,    239,    246,    250, 

251 
non-citrus      and      sub-tropical, 

242 
orchard,  239,  241 
preparation    of,    for     market, 

244,  245 
refrigeration  of,  246 
retailing  of,  254 
small,  240 
warehouses  for,  249 
Future   contracts,   cotton,   abnor- 
mal discounts  in  the  price 
of,  114 


402 


INDEX 


Future  contracts,  copy  of,  141 
effect  of  Cotton  Futures  Act 

on,  144 
influence      of,      on      cotton 

prices,  111,  131,  133 
nature  of,  145 
price  differences  in,  146 
definition   of,    140 
delivery  on,  149 
form  of,  for  wheat,  144,  145 
law   governing,    142,    150 
as  a  means  of  insurance,  155- 

158 
nature    of,    in    grain    market, 

148 
in  produce,  21,  136,  140 
settlement  of,   150 

General   business   conditions,   ef- 
fect of,  on  prices,  362 
Gold    production,    effect    of,    on 

prices,  347 
Government    crop    reports.     See 

Crop  reports 
Grades,  of  cotton.       See  Cotton, 
grade  of 
of  fruit.     See  Fruit,  grading 

of 
of  grain  deliverable  on  future 

contracts,   148 
of  leaf  tobacco,  223 
of  wheat,  268-270 
of  wool,  287-289 
Grading,  functions  of,   259 
of     tobacco.      See     Tobacco, 

grading    of 
organization  of,  261 
Grading   and    inspection,    of   cot- 
ton.    See  Cotton,  grading 
and  inspection  of 
of  grain.     See  Grain,  grading 

and  inspection  of 
of    livestock.      See    Livestock, 
grading  and  inspection  of 
of   wool.      See   Wool,   grading 
and  inspection  of 
Grain,    certificate    of    custodian 
department   for,   77 
classes  of,   267 
competition    between    primary 

markets  for,  55,  57 
condition  of  cars  carrying,   69 
construction    and    capacity    of 
terminal  elevators  for,  62 


Grain,  country  elevators  for.   See 
Elevators 

daily  report  of  shipments  of, 
by  elevators,  68 

exports  of,  87 

farmers'  cooperative  elevators 
for.      See   Elevators 

federal  regulation  of  elevators 
for,   78 

form  of  warehouse  receipt  for, 
74 

functions  of  terminal  elevators 
for,   62 

grades  of,  268 

grading  and  inspection  of, 
262-270 

handling  of,  in  sacks  on  Pa- 
cific  Coast,  47 

inspection  and  grading  of, 
262-268 

line  elevators  for.     See  Eleva- 
tors 
.  loans  on,  332 

local  market  for.      See    Local 
markets 
dealers'   elevators   for.     See 
Elevators 

mixing  of,  in  elevators,  82 

ownership  of  terminal  eleva- 
tors for,  63 

prices  of,  at  the  seaboard,  89 
factors   influencing,    88,   91 
in  the  primary  markets,  88, 
89 

primary  and  seaboard  markets 
for.  See  Primary  mar- 
kets. Seaboard  markets 

railroad  certificate  for,  81 

receipts  and  shipments  of,  at 
primary  markets,  52-55,  70 
at  seaboard  markets,  52 

reinspection  of,  266 

terminal  elevator  system  for. 
See  Elevators 

trade  in,  geographical  distri- 
bution of,  30 

types  of  contracts  used  in  sell- 
ing, by  country  elevators, 
86 

warehouse  system  for,  29 
receipts  for,  71,  79,  83 

weight  certificate  for,  69,  76 
Grain    elevators.      See    Elevators 
Grain  exchanges.    See  Exchanges 


INDEX 


403 


i 


f 


ii 


Grapes,  242 

Growers'       local       prices.      See 

Prices 
Growers'  sales,  kinds  of,  17,  18 

Hedging,  advantage  of,  154 
in  cotton,  110,  130,  157,  158 
effect  of  Cotton   Futures  Act 

on,  112,  159 
in  grain,  43,  82,  156,  157 
place  of,  in  crop  financing,  324 
use  of,  for  insuring  trade  prof- 
its,  155-158 
Hog-raising  area,   167 
Hogs,     number     of,     in     United 
States,  167 

Import   business,   Americp.n   con- 
sumers in,  27 
Import  commission  houses,  Amer- 
ican,  27 
Import     duties,     effect     of,     on 

prices,  360 
Import  settlements,  336 
Imported  wool,  purchase  of,  217, 

218 
Importing  methods,  25,   26 
Imports,    of    agricultural    prod- 
ucts, 381 
effect  of,  on  farmers,  384 
of   fruits,   243 

of  tobacco.     See  Tobacco,  im- 
ports of 
of  wool,  204 
reason   for,   208 
Index      numbers     of     wholesale 
prices,   342,  343,  346,  348 
Inspection,  functions  of,  259 
"  and    grading,    of    grain.      See 
Grain,       inspection       and 
grading 
of  produce,  259 
of  grain  leaving  terminal  ele- 
vator, order  for,   72 
of     livestock,     174,     175,    177, 

191,    195 
organization  of,  261 

See  also  Grading  and  in- 
spection 
Inspection  tags,  certificates  and 
labels  for  livestock,  192- 
196 
Insurance  of  agricultural  prod- 
uce, 308 


Insurance  of  agricultural  prod- 
uce, as  a  basis  for  loans, 
311 

certificate  of,  312 

of  commodities,  313,  314,  315' 

of  cotton,  121 

of  livestock,  309 

of  rural  crops,  308 

of  shipments,  while  in  trans- 
portation, 315,  317,  320, 
322,  323 

of  trade  profits  by  future  con- 
tracts,   155-158 

types  of  companies  writing, 
310,  311 

against  various  perils,  309 

under  war  risk  policy,  324 

Leaf  tobacco.     See  Tobacco 
Lightning  insurance.     See  Insur- 
ance 
Line  elevators.     See  Elevators 
Livestock,    central    markets    for. 
See    Central    markets 

cooperative  associations  for 
shipping,  178 

costs  of  marketing,  190 

eastern  cities'  supply  of,  183 

exports  of,  185 

grading  of,  286 

inspection  of.      See  Inspection 

insurance  of.     See  Insurance 

local  market  for.  See  Local 
markets 

prices  of,  influences  affecting, 
184,    185,.  197,    198 

private  sales  of,   179,   180 

ranges  for,  205 

receipts  and  shipments  of,  at 
central    markets,    183 

retail  sales  of.  See  Eetail  sales 

selling  of,  through  commission- 
men,   177,   190 
to    local    dealers,    slaughter- 
ers and  re^ilers,   179 

trade  in,  geographical  classi- 
fication of,  164,  165 

transportation  of,  170,  171, 
172,   173 

yards  for,  187-189 
liivestock    exchanges.      See    Ex- 
changes. 
Livestock    industries,    magnitude 
of,  8,  9,  168 


404 


INDEX 


Loans,  on  agricultural  products, 
104,    105,    107,    178,    328, 
332,  333,  334 
cold  storage  warehouse,  334 

Local  buying  of  woo),  215,  216, 
217 

Local  grain  dealers'  elevators. 
See    Elevators 

Local  haul,  length  and  cost  and 
methods  of,  36,  37 

Local  markets,  for  agricultural 
products,  12,  19,  29,  30, 
40-46,  94-109,  176-179, 
215-217,  228-234 

Local  trade,  in  barley,   distribu- 
tion  of,  36 
in  corn,  distribution  of,  32 
in  oats,  distribution  of,  34 
in   wheat,   distribution   of,   30, 
31 

Manipulation,       effect      of,      on 

prices,  91,  355 
Marine   cargo    and   freight   poli- 
cies,   322 
Marine     cargoes,     insurance     of. 

See  Insurance 
Marine  losses,  320,  321 
Marketing  of  fruit.     See   Fruit, 

marketing   of 
Marketing     processes,     classifica- 
tion of,  16 
Markets,  central,  local,  primary, 
retail,     secondary,    whole- 
sale.     See    under    the   re- 
spective headings.  Central, 
Local,  etc. 
central  wholesale.    See  Central 

wholesale   markets 
classification  of  agricultural,  12 
foreign,   368 

See  also  Exports 
municipal.     See  Municipal 
for     tobacco.       See    Tobacco, 

markets 
wholesale.   See  Wholesale  mar- 
kets 
Meat  products,  federal  inspection 
labels  and  certificates  for, 
194,  195,  196 
Milling-in-transit  of  grain,   59 
Mortgage      credits,       long-term, 

327 
Municipal  markets,  22,  24,  255 


Oats,  foreign  trade  in,  34 
local     trade     in.      See    Local 
trade    receipts    and    ship- 
ments of,  at  primary  and 
seaboard  markets,  52 

Office  inspection  system  for 
gram,    263 

Options  distinguished  from  fu- 
ture contracts,   151 

Orchard  fruits.  See  Fruits,  or- 
chard 

Organization  of  inspecting  and 
grading.  See  Inspection 
and   grading 

Oriental  letter  of  credit,  337 

Packing    of    fruit.      See    Fruit, 

packing  of 
Perique    tobacco.      See   Tobacco, 

perique. 
Price,    of   agricultural    commodi- 
ties.    See  under   head   of 

various    commodities    and 

under   Prices 
of  cotton.    See  Cotton,  price  of 
** Price    differences''    in    cotton 

future  contracts,  146,  147, 

148 
Prices,  effect  of,  various  factors 

of,  160,  350,  354,  355,  356, 

357,  358,  360,  362 
factors  influencing,  in  general, 

160,  350-362 
of   grain,    factors   influencing, 

88 
See  also  Grain 
of    livestock.      See    Livestock, 

prices  of 
of  produce,  341,  343,  344,  346, 

348 
retail.     See  Retail  prices 
of  tobacco.     See  Tobacco,  leaf 
wholesale,  of  various  classes  of 

products,    343,    344,    346, 

348 
of  wool.     See  Wool,  prices  of 
Primary  markets,  competition  be- 
tween, 55,  57 
functions  of,  56 
for     grain,     location     of,     50, 

51 
prices  of,  for  grain,  88,  89 
purchase  and  sale  of  grain  at, 

83 


INDEX 


405 


Primary  markets,  volume  of  busi- 
ness of,  relative  importance 
and  receipts  and  ship- 
ments of,  52,  54 

Production  and  distribution  dis- 
tinguished, 1 

'*Puts,"   151 

Railroad  certificate  for  grain,  81 
Railroad  rates.     See  Transporta- 
tion charges 
Railroad  shipments,  insurance  of. 

See  Insurance 
Regulation,  of  elevators,  by   ex- 
changes, 75-78 
by   the   federal   government, 

78 
by  the  states,  65,  66 
of    tobacco    warehouses,    231, 
232  ' 

Reports  on  crops.     See  Crop  re- 
ports 
Retail  markets,  16,  254 
Retail  prices  in  general,  364 
Retail  sales,  of  fruit.    See  Fruit, 
retailing  of 
of  livestock,  23 
of  produce,  23 
Rural  commercial  credits,   short- 
term,  328 
Rural  credit,  327 

See  also  Loans 
Rural  insurance.     See  Insurance 
Rye,   receipts   and   shipments  of, 
at   primary   and   seaboard 
markets,  52 

Sales,  retail.    See  Retail  sales  of 

produce.  Auction  sales  of 

produce,  Spot  transactions 

in  produce,  etc. 
Seaboard     and     primary     grain 

markets,  50,  52,  60,  61 
Seasonal  flow  of  funds,  338 
Settlements,     financial,     methods 

of,  335,  336 
Sheep.    See  Livestock 
number  of,  168,  169 
Sheep-growing      districts,       167, 

169 
Short- selling,  effect  of,  on  prices, 

160 
in  the  produce  market,  149 
Small  fruits.     See  Fruits,  smaU 


Speculation,  effect  of,  on  prices, 
160,   354 
functions  of,  151,  153,  154 
See  also   Future  contracts 

Spot  transactions  in  produce,  20, 
84-88,  124,  125,  126,  140, 
152,  153,  189,  218,  229, 
250-256 

State  inspection  and  grading. 
See  Inspection  and  grad- 
ing 

''Straddles,"   151 

Sub-tropical  fruits.  See  Fruits, 
sub-tropical 

Sun-cured  tobacco.  See  Tobacco, 
sun-cured 

Tare  rules  relating  to  cotton,  113 
Tariff,  effect  of,  on  commodities 
and   prices,    90,    207,    219, 
236,  384-385 
Terminal    elevator.      See    Eleva- 
tors 
Terminal   markets  for   grain,   51 
Tobacco,   bright  yellow   and   ex- 
port, 227 
burley,  and  dark,  226 
cigar,  types  of,  223,  228 
exports  of,   235 
grades  of,  223,  290 
imports  of,  235 
inspection  of,  232 
loans  on,  333 
methods   of    selling,    228,    230, 

233 
middlemen   in,    229 
perique,  228 
price  of,  235,  237 
smoking,    chewing,    snuff    and 
export,  methods  of  selling, 
230 
southern  buyers  of,  234 

markets  for,  233 
sun-cured,    227 
trade  in,  222 

types,     districts,     output     and 
prices   of,    222,   223,    224, 
332 
warehouse  receipts  for,  232 
Tobacco  crop,  extent  of,   222 
Tobacco      districts,      223,      225, 

332 
Transportation  of  livestock,  171, 
172 


406 


INDEX 


P> 


Transportation  charges,  59,   113, 
132,    172,    191,    214,    219, 
247 
effect    of,    on    prices,    88,    99, 
113,  132,  199,  219,  358 

Tornado    insurance.      See   Insur- 
ance 

United    States    Cotton    Futures 
Act,  text  of,  142,  389 
Sec  also  Cotton  Futures  Act 

Visible    supply,    301,    302,    303, 
304,  305 

Warehouse     receipts    for     grain. 
See   Grain,   warehouse   re- 
ceipts  for 
Warehouses,    cold    storage,    247, 
334 
for  cotton,  109,  123,  124 
for    fruit.      See   Fruit,  ware- 
houses for 
functions  of  country,   29 
Warehouse  system  for  grain.  Sec 
Grain,    warehouse    system 
for 
War  risk  insurance,  324 
Weighing     department,     Chicago 

Board  of  trade,  76 
Weight  certificate  for  grain,  69, 

76 
Wheat,  central  markets  for.    See 
Central  markets 
exports  of,  30 

future  contract  for.     See  Fu- 
ture contract 
geographical     distribution     of 

local  trade  in,  30,  31 
proportion  of,   shipped  out  of 
country    w^here    grown,    32 
receipts   and   shipments  of,   at 
primary       and       seaboard 
markets,  52 
See  also  Grain 
Wheat-growing  area,  30,  31 


Wholesale   market.      See   Centra* 
markets 

for  fruit,  250 
Wholesale    market    transactions, 

secondary,   22 
Wholesale  prices,  341,  343,   354, 
355 

index    numbers    of,    342,    343, 
346,  348 
Wholesale      secondary      markets, 

15 
Windstorm  insurance.   See  Insur- 
ance 
Wool,    Boston    classification    of, 
288 

central  markets  for,  212,  213, 
214 

competition    in,    between    for- 
eign and  domestic,  207 

consignment     of,     to     central 
commissionmen,   216 

cooperative  selling  of,   217 

cost  of  production  of,  209,  210 

distribution  of,  among  the  in- 
dustries, 211 

factors     affecting    supply    of, 
209 

geographical  classes  of,  287 

grading  of,   203,  287 

imports  of,  204,  206,  207,  217 

loans  on,  333 

local  purchasing  of,   215,  216, 
217 

methods  of  selling,  215 

Pacific  Coast  markets  for,  214 

price  of,  218,  219 

production   of,   202,   203,   204, 
206 

purchases   of,   by   manufactur- 
ers  direct,    217 

railroad  rates  on,  214 

shrinkage  of,  208 

supply     and     distribution     of, 
202,  205 
Wool  market,  202 
Wool  trade,  peculiarities  of,  202 


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